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^ 



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r 



2. SX 



THE 



PEINCIPLES 



POLITICAL ECONOMY 



APPLIED TO 



THE CONDITION, THE RESOURCES, AND THE INSTITUTIONS 
OF THE AMERICAN PEOPLE. 



FRANCIS BOWEN, 

ALFOKD PROFESSOR OF MORAL PHILOSOPHY AND CIVIL POLITY 
IN HARVARD COLLEGE. 



" It is not that a Duke has 50,000Z. a year, but that a thousand fathers of families have 501. a 
year, that is true national wealth and weU-being." — Laing. 



BOSTON: 
LITTLE, BROWN, AND COMPANY. 

1856. 



1 i 



.Bis 




Entered according to Act of Congress, in the year 1856, by 

FRANCIS JJOWEN, 

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Goo Per Union LlbrarV 
Aug. 26 1934 




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PREFACE 



"Political Economy," says Mr. Samuel Laing, "is not a universal 
science, of whicli the principles are applicable to all men under all cir- 
cumstances, and equally good and true for all nations ; but every coun- 
try has a Political Economy of its own, suitable to its own physical cir- 
cumstances of position on the globe, climate, soil, products, and to the 
habits, character, and idiosyncrasy of its inhabitants, formed or modified 
by such physical circumstances." 

I am not prepared to accept this remark in all its generality, for if it 
were true, it would follow, not only that Political Economy is not a uni- 
versal science, but that it is no science at all, inasmuch as universal ap- 
plicability, as Mr. Laing himself observes, is " the distinguishing char- 
acteristic and test of every branch of knowledge that claims the dignity 
of real science." But the habits and dispositions of men, as manifested 
in the pursuit of wealth, may be reduced to general principles, and thus 
become subjects of legitimate scientific classification and inquiry, just as 
much as those other habits and dispositions which are manifested in the 
constitution and conduct of organized society, and which, when general- 
ized and classified, become the science of Politics. There is a general 
science of Human Nature, of which the special sciences of Ethics, Psy- 
chology, Esthetics, Politics, and Political Economy are so many de- 
partments, all founded upon the essential unity of the human mind and 
character, and the consequent similarity of its manifestations under sim- 
ilar circumstances. These sciences may be studied either inductively or 
deductively ; that is, either by observing the phenomena, — the conduct of 
men under given circumstances, — and tracing these up to their causes. 



VI PREFACE. 

— the motives in which they must have originated ; or by assuming the 
motives from our general knowledge of human nature, and tracing these 
down to the outward conduct which they cause and govern. In this 
sense, then, there is a universal science of Political Economy, equally 
applicable, not only to France, England, and America, but to China, 
Tartary, and New Holland, — to all nations under the sun. 

But it must be admitted that these universal principles are compara- 
tively few and unimportant, often being little more than truisms ; and if 
the science were limited to them, it would be of rather narrow compass 
and limited utility. Political Economy, as it is commonly understood, 
embraces a great number of corollai-ies and deductions from these prin- 
ciples, and of applications of them to the analysis and explanation of 
complex social and commercial phenomena. It is thus that the science, 
or rather any particular system of it, becomes obnoxious to Mr. Laing's 
censure ; having been suggested by the peculiar circumstances and con- 
dition of one country, relating almost exclusively to the experience of 
one nation, and deriving, in truth, most of its utility for them from this 
very fact, it is at least partially inapplicable and unsound in every other 
case. The Political Economy of England is even more peculiar and 
characteristic than her civil polity and social organization ; it is con- 
formed to that polity and organization, and it is also adapted to the phys- 
ical condition and industrial pursuits of an insular people. As circum- 
stances vary from age to age, as well as between different countries, it 
is continually necessary to review and modify the leading doctrines of 
the science, so as to preserve their conformity to the habits and the in- 
stitutions of the people. If Adam Smith were living in our own day, it 
may be doubted whether he would be the uncompromising advocate that 
he was, of the principles of Free Trade. He flourished at a tune when 
the system of monopolies and restraints was in full action and vigor ; 
when nothing had been done to limit or reform the colonial system, the 
guilds of trade, the East India Company, the Universities, or the abuses 
of municipal corporations. It was natural that he should utter an ear- 
nest protest against these odious restrictions and monopolies, and carry his 
argument against them too far, by neglecting to mention the exceptions 
and limitations to which his own principles were liable. 

I have endeavored in this work to lay the foundations at least, leaving 
it for others to raise the superstructure, of an American system of Po- 



PREFACE. Vll 

litical Economy, and for this purpose, have subjected to a rigorous exam- 
ination the leading doctrines of the science as taught by English writers, 
in order not only to test their general soundness and applicability to the 
condition and the institutions of the American people, but to trace out 
and analyze the peculiar circumstances which first suggested them. 
Among these doctrines may be enumerated those of Adam Smith upon 
free trade, of Malthus upon population, of Ricardo upon rent and profits, 
of Torrens and Loyd upon the currency, and of McCulloch upon the 
laws of inheritance. It is not the hglit of American experience alone 
which has induced me to modify or reject these theories ; I have at- 
tempted to show that they are indefensible even upon the principles of 
those who continue to support them, and to this end, have fortified my 
reasoning by frequent citations from English and French authorities. 

The work was not designed to be wholly controversial and original ; 
besides suggesting the doctrines which are to take the place of those 
which have been rejected, it was intended to contain a summary of what 
is most valuable in other treatises upon the subject, so as to form a con- 
venient text-book of instruction in American colleges. Most teachers 
will probably accept the conclusion which I have formed, after many 
years' experience, that it is a wearisome and hopeless' task to at- 
tempt to instruct a class of pupils from any of the English or French 
treatises upon the science. This volume contains the substance of a 
course of lectures upon Political Economy, first delivered before the 
Lowell Institute in Boston five years ago, and afterwards repeated, with 
many changes and additions, before successive classes in college. It 
also comprises all that was deemed worthy of preservation in a series of 
articles upon various topics in the science, wliich have been published 
during the last ten years in the North American Eeview. I have not 
deemed it necessary to rewrite what was at first carefully prepared for 
publication, when time and further reflection had not suggested any 
change of doctrine, or any material improvements in illustration or 
phraseology. 

The nature of the subject has compelled me to make a kind of com- 
parative survey of the workings and results of the social and political 
institutions of England and America. It is hoped that the results of 
this comparison, as here presented, will, not seem to have been suggested 
by national prejudice, or to be unduly tinctured with national self-esteem. 



VIU PREFACE. 

Most of what is valuable in our civil polity has come to us by inherit- 
ance from our English ancestors, and is still the common property of 
the two nations ; the trial by jury, the writ of habeas corpus, the leading 
forms of representative government, are still the common safeguards of 
English and American freedom, and the great principles of the Enghsh 
Common Law are still authoritative in our courts. Loyalty to the State 
and the Union talves the place with us of loyalty to the Crown. "We 
have only cast off the aristocratic and monarchical appendages of these 
institutions, to make room for democratic ones, — a change far less im- 
portant in a political than a social aspect. Whatever there is peculiar 
in the forms of society, the organization of industry, and the habits and 
dispositions of our people, which can be directly traced to this alteration, 
has been the subject of frequent and sharp criticism, not only by British 
travellers, but by British economists and statesmen. Thus, Mr. J. S. 
Mill, unquestionably the ablest living writer upon Political Economy 
and the Logic of the Liductive Sciences, and one who, from his connec- 
tion with the followers of Bentham and the Radical party, might be sup- 
posed to view with some favor the workings of republican institutions, 
cannot speak in any more flattering terms than these of the inhabitants 
of the Northern and Middle States of America : " They have the six 
points of Chartism, and they have no poverty ; and all that these advan- 
tages do for them is, that the life of the whole of one sex is devoted to 
dollai'-hunting, and of the other to breeding dollar-hunters." And the 
tone of McCuUoch, Tooke, and other Enghsh economists, in reference to 
the people of this country, is not a whit more complimentary.* Not at 

* Yet Englishmen wonder and complain that the sympathies of Americans are not 
with them and their allies in their present contest with Russia, — a contest which, as 
it involves no principles of natural or popular rights, but is solely a struggle between 
rival governments for a preponderance of power in the Black Sea, is certainly re- 
garded by the generality of our countrymen with unaffected indifference. The ques- 
tion whether Napoleon the Third has any better claim to the esteem of the people of 
the United States than he had to that of Englishmen only three years ago, is, per- 
haps, not worth discussing. But if England and America are ever to be joined in a 
natural alliance of spontaneous amity and mutual regard, a more conciliatory man- 
ner must be adopted by those who assume to speak the opinions of the middle and 
the upper classes in the former country. Disregard, if you will, all those manifesta- 
tions of popular sentiment here which may be imputed to electioneering manoeuvres : 
there still remains in the minds of the educated and reflecting portion of our peo- 



PREFACE. • 



all in the spirit of retaliation, but in that of self-defence, as weU as for 
the more perfect elucidation of the principles of the science, I have com 
pared the effects of aristocratic with those of democratic institutions upon 
the development of national enterprise, the growth of opulence the se- 
curity of property, the popular feehng of uneasiness or content, and the 
general well-being of the people in Great Britain and the United States 
Too much stress is habitually laid by English economists upon the nat- 
ural advantages which our countrymen are supposed to possess, espe- 
cially an the broad expanse of fertile territory which still remains open 
for settlement by them. But surely we cannot claim superiority in this 
respect over England, whose colonial dominion comprises Nova Scotia 
and Canada, a large portion of the East and the West Indies, the southern 
part of Africa, and the whole of New Zealand and Australia. Besides 
I have attempted to show that the causes of the increase of capital are 
moral rather than physical, and that there is a drawback, as well as an 
advantage, in the abundance and cheapness of land, which incite the 
people to leave behind them all the means and appliances of civihzation, 
and to become squatters and backwoodsmen in the wilderness. 

Though I have had frequent occasion to controvert the opinions of 
Enghsh economists, it is little to say that this work could not have been 
written without the aid which their writings have afforded, and that I 
have often borrowed from one or two of them facts and arguments which 
have served to confute the theories of the others. The authority of 
Adam Smith, Malthus, and Ricardo seems to be waning even in Eng- 
land; a new school has sprung up in opposition to them, whose opinions 
on many important points are visibly gaining ground, and have already 
begun to affect the legislation of the kingdom. Among these dissen- 
tients may be reckoned the eminent traveller and social economist, Mr 
Samuel Laing, and the ingenious and well-informed author of "Over- 
population and its Eemedy," Mr. W. T.Thornton; while Mr Tooke 
the author of an admirable " History of Prices," and Mr. FuUarton, have' 

pie who are naturally cordial well-wishers to England, a strong feeling of surprise 
rTrr r " ? 'r''^' ^"' '°™^°^^^"^ "°^ habituan/assu^rd ahou e ! 
1 e E^r^^^^^^^^^^^ r"" '' *'" ^"'^^^°'=^^ J°""^^ -'^^^^' -- -ore than 

21712' '' ''°"''' ^^"'""^' '' ^^^^^^^ - -- -^ g-erous as Web! 

ster and Ashburton, can never entirely eradicate. 



X PREFACE. 

successfully established, in opposition to the paradoxes of Eicardo and 
his followers, a rational theory of the currency. Mr. J. S. Mill, an 
avowed iconoclast and reformer, has followed or preceded these writers 
on some of their points of dissent from the old school, and has incorpo- 
rated into his work some very bold speculations respecting the laws of 
inheritance and the distribution of property ; but in other respects, he 
has followed very closely in the footsteps of Malthus and Ricardo. 
From the writings of all whom I have mentioned by name, and of sev- 
eral others, I have derived valuable aid and instruction. 

Throughout the work, I have had in view the wants of learners, and 
have tried to incorporate into it such elementary information about bank- 
ing operations, the system of disposing of the pubUc lands, the nature of 
bills of exchange, the functions of the currency, the supply of the pre- 
cious metals, and the course of trade both at home and with foreign 
countries, as might be useful not on\j to classes in college, but to other 
young men, who, with less preparatory training, are about to enter the 
mercantile profession. 

Cambeidge, December 28, 1855. 



CONTENTS. 



CHAPTER I, 



Wealth and its Transmutations 

Definition of Wealth 

The science of wealth founded on the laws of human nature 

Articles of wealth are quickly consumed 

Wealth must be perpetually renewed . 
"■ Folly of asking for an equal distribution of wealth 

How a country recovers from devastation . 

Wealth changes, property may be permanent . 

The transformations of wealth illustrated . 

Operation of the Savings' Banks in Massachusetts 

Wealth is not locked up in Banks . . 

But is kept in constant activity and change 




1 

1 

2 

3 

4 

4 

5 

7 

8 

10 

11 

12 



CHAPTER II. 

The Aims, the Limitations, and the Advantages of the 
Study of Political Economy: the "Laissez-faire," or 

" Let-alone " Principle 

There are general laws that constitute a theory of wealth 

Political Economy not the art of money-making 

How far it is a deductive science ..... 

Legislation affected by one theory or another of wealth 

Errors in reducing the principles of this science to practice 

Importance of the study of social economy . 

Necessity of teaching the doctrines of this science . 

Dignity and utility of the science of wealth 

Selfishness and cupidity made to minister to the public good 

As in the dally supply of a great city with provisions . 

The laissez-faire principle founded on this truth 

Limitations of this principle 

Restrictions necessary to secure freedom of action to all . 
The protective policy removes obstacles and restraints 

b 



13 
13 
13 
14 
15 
16 
17 
18 
19 
20 
20 
22 
23 
24 
25 



Xll 



CONTENTS. 



What constitutes national independence . . . . ' . 26 

Divine wisdom and beneficence manifested in economical laws . .27 



CHAPTER III. 

How Wealth is created, and what constitutes Exchange- 
able Value 28 

Certificates of ownership distinguished from articles of wealth . . 28 

Human labor the only source of wealth 29 

Extensive cooperation necessary ....... 30 

How this cooperation is obtained . 31 

Two elements of exchangeable value 32 

- Value and utility defined ........ 33 

The paradox of the creation of value ....... 34 

Value cannot exist without difiiculty of attainment .... 35 

Distinction between natural and artificial wealth . . . .36 

Small earnings of scientific and literary men . . . . . 37 

Ideas cannot be appropriated ........ 38 

■ Production defined ......... 39 

Three departments of industry 40 

Two classes of commodities that constitute wealth .... 40 



CHAPTER IV. 

The Measure op Value, and the Distribution of Wealth 

among the cooperating producers of it . . . .41 

Definition and measure of labor . . . . . . . 41 

Two Hmitations of this general law ....... 42 

Exchangeable value transformed into natural wealth ... 43 

Exceptions caused by accidents and monopoUes 44 

Attempts to obtain wealth without labor ; lotteries .... 45 

How the value produced is distributed . . . . . .46 

Competition modified by custom . . . . . . . 47 

How the inferior tenants in England were dispossessed . . .48 
The Scotch Highlanders owned the soU in cormnon property . . 49 
Eviction of the Highland tenantry ....... 50 

Tenant right in Ireland ; other efiects of custom . . . . 51 

Competition distributes values with perfect fairness . . . .52 

Mutual dependence of agriculture, commerce, and manufactures . 53 
UtiUty of commerce .......... 54 



CHAPTER V. 

The Division of Labor: its Beneficial and Injurious Con- 
sequences 55 

Simple and Complex Cooperation . . .... 56 

Advantages of the Division of Labor 57 



CONTENTS. 



XIU 



Increased dexterity, corporeal and mental 
Saving of time and invention of machines 
Classification of operatives and economy of labor 
Limits of the division of labor .... 

The mental faculties dwarfed by the division of labor 



Page 
58 
59 
60 
61 
62 



CHAPTEE VI. 

The Nature op Capital, and the Means of its Increase 
Definition of capital ...... 

How far labor is limited by capital 

Advantages of capital ...... 

Why not amassed by savages .... 

Frugality the source of capital .... 

Productive and unproductive consumption 
Prodigals do not benefit the community . 
Savings can only be made from income 
Unproductive consumption ought not to be regretted 
Fixed and Circulating Capital defined 
Enumeration of ax*ticles ranked under these two heads 



63 
63 
64 
65 
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66 
67 
68 
70 
70 
71 
72 



CHAPTEE VII. 

The Circumstances which eavor the Growth of Capital 
THE Security of Property 

Vast influence of laws and social institutions 
Physical advantages have little efifect .... 
Influence of moral causes exemplified in Spain . 
Three principal causes of the growth of capital 
Inherited qualities of race comparatively unimportant 
Security of property the indispensable prerequisite . 

The effects of insecurity iUustrated 

Uncertain exactions are the most injurious 

Manners and opinion, more than law, create security . 



73 
73 

74 
75 
76 
77 
77 
78 
79 
81 



CHAPTEE VIII. 

The Increase of Capital as affected by the Encourage- 
ment OF Manufactures, and by the Concentration of 

THE People in Cities and Towns 82 

Difference between skilled artisans and rude laborers . . . .82 

Proportion of rude laborers to the whole population . . . 83 

Loss suffered from a deficiency of skilled labor ..... 84 

Ireland compared with Massachusetts in this respect ... 84 

Comparative amount of pauperism in these two cases . . . .85 

Ireland lacks not natural advantages . . . . . . 86 

Eapid growth of capital in Massachusetts 87 



XIV 



CONTENTS. 



Manufacturing skill •worth the price paid for it 

Disadvantageous exchange of rude produce for manufactures 

Manufactures create cities and towns .... 

Contrast of our Southern and Northern States in this respect 

Growth of freedom and wealth in cities and towns 

How colonies were formed in ancient times 

Contrast of modern colonies .... 

Utah colonized on the principles of the ancients 

Wakefield's theory of colonization 

Trial of his sj'stem in Australia 

American plan of selling the public lands 

Mistaken policy of reducing the price of land . 

Manufactures and concentration needed at the West 

Too great surplus of raw produce 

The wheat-exporting region retiring westward 



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94 
95 
96 
97 
98 
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100 
101 
102 



CHAPTER IX. 

The Increase of Capital as affected by the Advantages 
AND Rewards which are held out to the Possessors 

OF Wealth 104 

Frugahty encouraged when wealth brings honors . . . . 104 

The effective desire of accumulation . . . . . .105 

Civilization depends on the strength of this desire .... 106 

Accumulation is rapid when profits are high . . . . .107 

Low rates of interest in Holland and England . . . . 108 

All classes enabled to make savings .109 

Great effects of the aggi-egate of small savings .... 110 
Savings of the poor larger than those of the rich . . . .111 
Statistics of Savings' Banks . 112 



CHAPTER X. 

The Increase of Capital as affected by the Political and 
Social Advantages attending the Possession of Wealth 
Fixity of ranks and classes a bar to the growth of wealth 
Influence of castes in Eg}^t and India 
Mobility of society among the Greeks and Romans 
Slaves not much used for profit by the ancients 
Ancient Italy cultivated chiefly by freemen . 
Caste excluded from the free cities in the Middle Ages 
Contrast of town and country in those times 
Great prosperity of the repubhcan cities . 
Striking effects of the absence of caste here in America 
Different aspect of society in England 
Uniform partition of wealth would create general torpor 
Inequality is a law of human nature 



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115 
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121 
122 
124 
125 
126 



CONTENTS. 



XV 



The true policy of society .... 
Equality would not promote happiness 
Joint-stock companies take the place of large capitalists 
Unfounded prejudices against such corporations 



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128 
129 
130 



CHAPTER XI. 

The Malthusian Theory of Population consideeed and 
keetjted .......... 

The demand generally regulates the supply 
Land and population not subject to this law . 
Ambiguity in the doctrine of Malthus 
Indefinite power of increase of the human race 
Rate of increase in the United States 
The means of subsistence increase but slowly 
Comparison of the two rates .... 

Causes of the more rapid increase in modern times 

Reasoning of Malthus on these facts 

Gloomy consequences of his theory 

Effects of different standards of living 

The theory may be applicable in a remote futurity 

No excess of population at present . 

The density of population in Europe . 

More mouths compensated by more hands 

Irish misery not caused by over-population . 

Barbarous races tend to die out 

Civilized ones seek wealth, not food 

Commerce equalizes the supply of food everywhere 

Hence, the whole earth is made to feed any nation 

The amount, not of food, but of wealth, hmits population 

Causes of the famine of 1847 

Why more food is not now produced 

Mankind can never multiply up to the real limit 

Ambiguous meaning of the word " tendency " . 

Use of this ambiguity by the Malthusians 

Subsistence really tends to outrun population . 



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154 



CHAPTER XII. 

The Principles which regulate the Growth op Population 155 
Motives to marriage and celibacy . . . . . . 156 

Causes of rapid increase in a new country 157 

Statistical proofs of this law . . . . . . . . 158 

The preventive check operates even in Massachusetts . . .159 

Misery favors the growth of population 160 

Necessaries, decencies, and luxuries defined . . . . .161 
Varying use of these words by different classes . . . . 162 
b* 



XVI 



CONTENTS. 



CHAPTER XIII. 



The Theory of Rent 

■ Three leading theories of English political economy 

Ricardo's theory of rent explained ..... 

Effects of unequal fertility of different soils . 

Of unequal distances from market ..... 

Of successive applications of capital .... 

The result postponed by agricultural improvements . 
The theory illustrated by Malthus .... 

This theory of rent a supplement to the Malthusian theory 
Its gloomy consequences ...... 

Opposite views of the course of Providence 
Both theories suggested by the peculiar state of England 
An increase of pojiulation not always injurious 
The theory contradicted by American experience . 
And therefore inapplicable elsewhere 
Poorer soUs not brought into tillage by enlarged populatii 
Nearness to market, more than fertility, affects rent . 
Rent regulated by the distribution of the population 
Effects of concentrating or diffusing population 
Rents have retrograded even in New England 
Proofs that English rents depend on the same cause . 
Wliy rents are low in France .... 

Supposed case of perfectly equal distribution . 
Injurious results of such an arrangement 
Consequent concentration, and origin of rent . 
Nature of the monopoly which gives rise to rent . 
Ricardo's theory inapplicable to ground rents in towns 
Movements of English population affecting rent 
' The payment of rent no hardship .... 

A protective system would raise rents at the West 



164 

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186 
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187 
188 
189 
190 
191 
192 



CHAPTER XIV. 



The Causes which affect the Rate of "Wages . . . 193 

Origin of the English doctrine of wages . . . . . .193 

Low wages do not prove excess of population . . . . 1 94 

But Indicate excessive numbers in the class dependent on wages . 195 

Great inequality of property In England ..... 195 

Natural or necessary rate of wages . . . . . . .196 

Effects of the received standard of Imng . . . • . 197 

English laborers improvident because hopeless . . . . .198 

Laborers elsewhere not driven Into the labor market . . . 199 
If wages are low, few offer to work for hire ..... 200 

The mobility of American life keeps up wages .... 201 



CONTENTS. 



XVll 



Emigration from one State to another . 
Natural standard of wages in America 
Two causes of the depreciation of wages here 
■ The immigration of foreigners . . . , 

Statistics and causes of the immigration 
The Irish exodus ....,,. 
High wages alone attract immigrants . 
Small effect of the depopulation of Ireland on wages there 
Irish misery the effect of free trade with England . 
Effect of Irish competition on American labor . 
The field for employing industry contracted . 
Kuinous effects of abandoning the protective policy . 
Consequences of the ruin of the iron manufacture . 
Wages and profits sinking to the English standard . 



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206 
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209 
210 
211 
212 
213 
214 



CHAPTER XV. 

The Causes of Different Eates of Wages in Different 

Employments 

Ease or hardship of the employment 

Expense and difficulty of learning the business 

The liberal professions poorly compensated 

Honor offset against wages .... 

Gratuitous education lessens the pay 

Constancy or inconstancy of employment 

Trust reposed in the person employed 

Probabihty or improbability of success . 

Small gains of lawyers ..... 

MonopoUes of the guilds of trade . 

Ancient use of the term University . 

Modern Trades' Unions and strikes 

The right to labor is property .... 

Restraints on admission to the professions 

In England, different grades of labor resemble castes 

Poor Laws obstruct the circulation of labor 

Head,-money or bonds required of immigrants . 

Difficulty of transferring labor 

The division of labor unfits persons for emigration 

The case of household manufactures 

And of female labor 



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233 
233 
234 
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236 



CHAPTER XVI. 

The Circumstances which determine the Rate of Profits 237 
, Exchangeable value resolved into Wages, Profits, and Rent . .237 

But labor alone creates value 238 

Ricardo's doctrine of profits 239 



XVIU 



CONTENTS. 



Different significations of the word 

Profits confounded with wages of management . 

And with insurance against loss .... 

How bankruptcy is viewed in different countries 

How habits of mind and action afiect profits . 

Illustrated by speculations in grain . 

Why profits are not equalized in different countries 

Profits vary proportionally with the rate of interest 

Characteristics of Ricardo's method 

His reasoning confuted by facts 

Gradual declension of the rate of profit 

Profits are high in newly settled countries 

Low rate of profit in England 

Adam Smith's explanation of the decline of profits 

Ricardo deduces it from the theory of rent . 

Exposition of his theory ..... 

How the fall of profits affects all employments 

The fall checked by agricultural improvements 

It affects fixed capital more than circulating . 

Criticism of this theory . . . 

Its fundamental statements already disproved 



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CHAPTER XVII. 

The Rate op Profit as affected by the limited Extent of 
THE Field for the Employjient of Capital : the Theory 
OF Gluts 

Theory of a general over-production of wealth 

But a general glut is impossible 

A glut of manufactured products is possible . 

Effects of reducing the supply of food 

A glut of finished products is possible . 

Three causes of a glut of such products . 

Effects of the unequal distribution of wealth . 

Exchange not always profitable 

The purchasing power must be general 

Where the market for manufactures is largest 

Proportion of embodied to free labor 

Cause of high profits in an infant settlement 

Cause of their decline ..... 

Invention raises the rate again 

Low profits Increase the inequality of fortunes 

And favor wild speculation 

Stationary state of wealth not to be dreaded . 



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273 
274 
275 
276 
277 
278 



CONTENTS. 



XIX 



CHAPTER XVIII. 

The Theory akd Uses of Money 
Money tlie universal garb and measure of wealth 
Former erroneous opinions about money . 
Money a costly contrivance .... 

Comparison of money with roads 

Loss of profit on money 

National wealth does not consist in silver and gold 

Utility of a general medium of exchange 

Any commodity may be used as money . 

Why metals are preferred .... 

Cattle once used as money .... 

The division of labor increases the need of money 
Why two or three metals are used at once 
Money not a sign, not always a measure 
Money measures values at one time and place 
How values are measured at different times 
And at different places .... 

Eeal and nominal price distinguished . 
Coined money has intrinsic value 
Seigniorage explained .... 

And justified ...... 

Prevents the melting or exportation of coin 
Overvalued displaces undervalued currency 
Operations of the Allied Banks in Massachusetts 
Their poUcy defended ..... 

Difierent relative valuations of sUver and gold 

Other uses of the precious metals 

How their relative values are determined 

Effects of a depreciation of gold or silver . 

Significance of the old names of coins . 

" Raising the standard " . 

Effects of a rise in the value of money . 



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305 



CHAPTER XIZ. 

The Distribution of the Precious Metals throughout the 

World: Substitutes for Money: Bills of Exchange: 

THE Course of International Trade .... 306 

Not as much money as there is merchandise ..... 306 

Effect of quickening or retarding the circulation . . . .307 

" Rapidity of circulation " explained ...... 308 

More business requires more money 309 

The quantity not regulated by the amount coined . . . . 309 

The quantity in each country regulates itself 310 



XX 



CONTENTS. 



One kind of money may be substituted for another 

Relative quantities of specie and paper 

Specie may be exported -without affecting prices . 

Reciprocal action of money and prices 

Effect of an excess of money on prices . 

Rate of interest not dependent on abundance of money 

Causes and effects of low prices .... 

How " accounts current " economize money 

Explanation of bills of exchange .... 

The course and par of exchange 

Real and nominal par of exchange with England . 

Bills of exchange represent real transactions 

Exports must balance imports .... 

Apparent excess of imports explained 

Trade with one country balanced by trade with another 

Statistics illustrating these principles 

Trade with England in 1847-48 . . . . , 

When coin and bullion will be exported . 

Drafts, checks, and bank-bills explained 

Operations of a clearing-house .... 

Adjustment of trade with the Western States 

Banks of deposit explained ..... 

Accounts closed without the transfer of money 

Money often only a hypothetical medium of exchange 



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332 
333 
334 



CHAPTER XX. 

The Functions op Banks and the Nature of Bank-Notes: 

THE Operations of Credit 335 

Three functions of banks 335 

Amount of saving effected by the deposit function .... 335 

The system of credit 336 

The capitalist not often the manager of capital . . . . 337 

The subject of credit is wealth, not money 338 

Utility of the credit system 338 

The discounting function of banks ....... 339 

Credit transfers, but does not create, wealth 339 

How and why banks are estabUshed 340 

Sources of bank profits ......... 341 

Mode of discounting notes 342 

Distinction of business and accommodation paper .... 343 

Origin and nature of bank-notes ....... 344 

Use of specie reserves ......... 345 

Such reserves form not all the bank assets 346 

Rule of discounting only " short paper " . . . . . . 347 

Banks should supply only circulating, not fixed capital . . . 348 

Insecuritv of land banks 349 



CONTENTS. 



XXI 



Keflux of bank-notes explained 

Interdependence and mutual guaranty of the banks 
Banks are not necessarily banks of issue .... 
Cannot increase loans or notes at pleasure .... 
Facts and theory support this statement .... 

The currency is a fixed quantity 

The public, not the banks, regulate the circulation . 

Banks compete with each other for their share of the circulation 

Artifices adopted for this purpose 

Difference between the large-note and small-note currency . 
The small-note currency should be restricted 

Peril of a general suspension 

Peril of mismanagement and failure of particular banks 
Expedients for the security of the circulation 

The Safety Fund system 

The Sub-Treasury system 

Evils and insufiiciency of this system 

Sub-Treasury drafts used as bank-notes . 

Laws cannot prevent banking operations . 

Accidents to which banks are liable 

The Treasury fund might support a good circulation 

Injudicious tax on bank capital .... 

The bank circulation should be taxed 



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371 



CHAPTEK XXI. 

Paper Money, and its Use as a Kevolutionary Currency 
Bills of credit, made legal tender, are paper money 
The Colonial and the Continental currency 
Issued in excess and depreciated 
The French assignats .... 
Their great depreciation .... 
Use of paper money in Kevolutionary times 
Its beneficial consequences at first 
Its inevitable tendency to excess . 
Effect of its depreciation on prices 
Gives rise to reckless speculation . 
Bank currency distinguished from paper money . 
Bank bills cannot be issued in excess 
Paper money not returnable to the issuers 
Bank-notes are thus returnable 
Hardships of the reversion to a specie currency 
Inevitable revulsion from a Revolutionary currency 
Political consequences of this revulsion 
The value of paper money regulated by its quantity 
Ricardo's " Economical and Secure Currency" . 
Plan of gradual resumption 



.373 

373 

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386 

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388 

389 

390 

391 



xxu 



CONTENTS. 



CHAPTER XXII. 
The Decline in the Value of Money 



Page 
392 



Consequences of such a decline 392 

The value of the precious metals depends on the cost of their production 393 

How much the American mines increased the supply . . . 394 

Effects of this increase .395 

Two conclusions from these facts . 396 

Statistics of the supply in the present century 397 

Great fluctuations of this supply 398 

Effects of gold washings unlike those of silver mines . . . .399 

Anticipated extent of the decline now going on . . . . 400 

Relative values of gold and silver 401 

In what ratio the value of money falls 402 

Effects of economizing the use of money 403 

The present decline but little retarded by a greater demand for money 404 

No reason to dread the decline 405 

Its effect on outstanding obligations 405 

What property wiU be depreciated 406 

Rates of interest will not be permanently affected . . . .407 

Only the coin in active circulation affects prices .... 408 

The spirit of speculation ultimately induced 409 

Specie reserves absorbed by the rise of prices • . . . 410 

Probable future course of the depreciation 411 

Prices to be equalized throughout the world 412 

Beneficial effects of the decline 412 

Former crises of a similar character . . . . . . 413 

Such a decline not followed by a reaction 415 

Change in the relative values of gold and silver will not indicate the 

ichole decline .......... 416 

How the alteration in the coinage should be made . . . .417 

What justice requires in this respect 418 

How the alteration was made in 1853 420 

The principle was borrowed from the English system . . . 421 

Silver is not now a standard of value 422 

The decHne in the value of money favors the United States . . 423 



CHAPTER XXIII. 

Effect of Speculation on Prices. — The Theory of a Com- 
mercial Crisis 424 

How prices are adjusted . 424 

A foil in price does not always increase the demand . . . .425 

Two elements of the demand 426 

What constitutes the supply . 426 

The price equalizes demand and supply 427 



CONTENTS. 



XXUl 



Commerce anticipates changes of price 
Commerce consists in speculation .... 
Speculation distinguished from gambling 
Speculation does not enhance prices unnecessarily . 
Speculation in grain benefits the consumers 
Mistakes in speculation correct themselves 
Speculators cannot control the price of grain 
Cycle of events in a commercial crisis 

A fever of general speculation 

Two theories respecting a monetary crisis 

Expansion of the currency not the cause of the evil . 

Not money, but purchases, affect prices . 

Purchases can be made to any extent without money . 

No limit to the expansion of credit 

Extent of land speculations in the United States 

No increase of the currency needed for such speculation 

The currency not actually increased at such times 

English examples cited to this effect 

American examples 

Not money, but disposable capital, is wanted . 

Money not needed even to effect payments 

" Scarcity of money " means " want of capital to lend " . 

A moderate expansion of " loans and discounts" is possible 

Fluctuating amount of disposable capital 

Effects of the loan-market being gorged 

Effects of the consequent reaction .... 

These fluctuations independent of the currency . 

Other causes affect the amount of disposable capital 

Effects of increased imports or diminished exports 

The bank reserves deaden the shock 

Money as a means of effecting exchanges . 

Serves also as a standard of value .... 



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456 



CHAPTEE XXIV. 

The Doctrine op International Exchanges ; the Policy op 
encouraging domestic manufactures by laying duties 

ON Imported Goods 457 

458 
459 
459 
460 
461 
462 
463 
464 
465 



The evils of excessive importation explained . 
How any country obtains pay for her exports 
Advantages of interchange between nations . 
Illustrated by the trade with Barbadoes 
Our trade with England explained 
Benefits of this trade sacrificed by over-importation 
Effect of removing a protective tariff 
Ruinous effects of the tariff of 1846 . 
Interchange of raw material and manufactured goods 
c 



XXIV 



CONTENTS. 



More imports obtained by lessening the price of exports 
All three branches of industry need development . 
Warning from the experience of England .... 
Free trade economists admit these principles . 
Protection benefits agriculturists more than manufacturers 
Effect of doubling the duty on imported manufactures . 
Prices not increased by the full amount of the duty 
Compensation for slightly increased prices 
How England has extended her manufactures 
Free trade applicable under certain circumstances . 
Cost of transportation acts in favor of England . 
Excessive imports cause ruinous fluctuations of price 
Taxes on articles bought for display cost nothing 
Protective duties on them are a clear saving . 
Private and public interest not always identical . 
The maxim, " buy at the cheapest market," examined . 

Refutation of it from experience 

Fallacious illustrations from extreme cases 
Nations, like individuals, must serve an apprenticeship 
Patents and copyrights are protective duties . 
Consequent admission respecting a protective system . 
England's acquired skill and experience her only advantage 
Former protection has diminished prices .... 

Need of favoring inventive skill 

The progress of improvement a national advantage 

Individuals not so much benefited 

Summary of the arguments for protection .... 
Waste caused by exclusive devotion to agriculture 



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483 
484 
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486 
487 
488 
489 
490 
491 
492 



CHAPTER XXV. 

The Distribution of Property as affected by the Laws 
regulating the succession to the estates of persons 
Deceased 493 



Inherited property not a natural right 

But natural equity limits the authority of law 

Natviral right limited to one's own earnings 

Landed property at first a usurpation 

How it becomes a right .... 

Theory of the Communists refuted 

Proper rule for the descent of property . 

Different systems of distributing the estate 

De Tocqueville and Webster on laws of inheritance 

Webster's prediction fulfilled .... 

Political influence gravitates towards property 

The habits of the people conform to the policy of the law 

Excessive subdivision of'land not to be dreaded 



494 
495 
496 
497 
498 
499 
501 
502 
503 
604 
505 
507 
508 



CONTENTS. 



XXV 



. Division of estates in France has reached its limit 

Laws of the ancients respecting inheritance . 

Effects of the feudal law in England . 

Origin of the right of primogeniture 

And of the law of entail 

Bacon and Smith on the law of entail . . , . 

Perpetuities forbidden in law, established in fact 

How English estates are kept together . 

This custom worse than perpetual entail 

Evils of Scotch perpetual entails removed in part 

Two causes of increased burdens on Irish estates 

Commission for the sale of Irish encumbered estates 

Amount of sales under this commission 

Consequences of the great inequality of wealth in England 

Opposite state of things in France 

The monster farm system ..... 

The land produces less under this system . 

Beneficial effects of small properties 
. Results of the two systems taken side by side 

Large estates divert much land from production 

The Scotch Highlands converted into game preserves 

Or into sheep pastures 

Systematic depopulation of the country 

Absenteeism and middlemen in Ireland . 

Large estates make food dearer and wages lower 

Fearful proportion of laborers for hire in England . 

Results of the depopulation of the rural districts . 

Benefits of the American law of inheritance . 

Wealth creates wealth, poverty generates poverty 

Natural limit to excessive accumulation . 

The English law chills exertion 

Preponderance of misery in Great Britain 

Apologies for primogeniture . . 

Great estates deaden exertion everywhere 

Opposite effects of repubhcan principles 

Liberal use of wealth in the United States 



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■» ^-.. ,». ' 




PRINCIPLES 



OF 



POLITICAL ECONOMY. 



CHAPTER I. 

WEALTH AND ITS TRANSMUTATIONS. 

The most obvious, though certainly not the most impor- 
tant, difference between a civihzed community and a nation of 
savages consists in the vastly greater abundance, possessed by 
the former, of all the means of comfort and enjoyment. These 
means, including the necessaries, conveniences, and luxuries 
of life, are chiefly material objects, — such as manufactured 
goods, articles of food and clothing, ships and buildings, the 
useful and the precious metals, tools and machines, and orna- 
ments, or things designed to gratify the taste and the senses. 
Some, however, are immaterial, and yet are just as much ob- 
jects of desire, just as much objects of barter and sale, as cloth 
and bread. The legal knowledge and acumen of a lawyer, for 
instance, the vocal powers of a remarkable singer, the mimetic 
talent of an actor, the practised hand of an ingenious and thor- 
oughly-trained artisan, aU command a price in the market 
quite as readily as any goods in a shop. "When an occasion 
arises, we buy the services of a lawyer or a physician, just as 
we buy a ticket to a concert, or an instrument of music for a 
drawing-room.* 

* Many Political Economists exclude immaterial products from their definition of 
wealth, because the labor •which is devoted to such products " ends in immediate 
enjoyment, without any increase of the accumulated stock of permanent means of 
1 



A WEALTH AND ITS TRANSMUTATIONS. 

Now, the aggregate of all these things, whether material or 
immaterial, which contribute to comfort and enjoyment, and 
which are objects of frequent barter and sale, is what we usu- 
ally call Wealth ; and individuals or nations are denomi- 
nated rich or poor, according to the abundance or scarcity of 
these articles which they possess, or have at their immediate 
disposal. 

Two questions, we are told, may be asked respecting the 
production of these articles: — 1. By what mechanical pro- 
cesses are they manufactured or obtained ? To answer this 
query, is the business of a man of practical science or an arti- 
san, — of a chemist, a mechanic, or a farmer; as Political 
Economists, we have nothing to do with it. But (2.) we 
may ask. On what principles do men readily exchange these 
articles for each other, and what motives, what general laws, 
regulate their production, distribution, and consumption ? 
PoUtical Economy 'undertakes to answer this question, and is 
therefore properly considered as one of the Moral Sciences. 
It depends, quite as much as Pohtics and Ethics, upon the 
principles of the human mind. It is quite as possible to re- 
enjoyment." The man ■who makes a fiddle, they say, is a productive laborer, be- 
cause his work remains as a permanent addition to the stock of things from which 
men derive pleasure ; but he who only plays upon the fiddle, though, like Paga- 
nini, he earns JE 1,000 in a single evening, adds nothing to the wealth of the com- 
munity. "We answer, that the characteristic of all wealth is, directly or indirectly, 
to satisfy some want or gratify some desire. The fiddle is but an indirect means to 
this end ; it would gratify nobody, — it would not increase our store of valuables, — 
if the skill of the practised musician could not extract sweet sounds from it. The 
time during which the pleasure endures, or the number of occasions on which it 
may be repeated, is a point of no importance, except so far as it may determine the 
amount, or quantity, of the wealth which has been created. Food which is ready 
to be eaten is wealth, just as much as the knives and forks with which we eat it; 
though the former is devoured at once, and there is an end of it, while the latter 
may remain in daily use for a year or more. 

" When a tailor makes a coat and sells it," argues Mr. J. S. Mill, " there is a 
transfer of the price from the customer to the tailor, and a coat besides, which did 
not previously exist ; but what is gained by an actor is a mere transfer from the 
spectator's funds to his, leaving no article of wealth for the spectator's indemnifica- 
tion." We reply, that the purchaser obtains only a gratification of desire in either 
case. From the coat, he has moderate enjoyment prolonged for some months ; but 
he might do Avithout it, and work in his shirt-sleeves. From the theatre, he has 
keen enjoyment, that lasts only a few hours ; and he may prefer such pleasure to 
the luxury of additional clothing. It is inconsistent to give the name of wealth to 
what pleases our palates for a moment, and deny it to what gives keener pleasure 
to our ears. 



WEALTH AND ITS TRANSMUTATIONS. 6 

duce to general laws the habits and dispositions of men, so far 
as they are manifested in their efforts for the acquisition of 
wealth, as it is to develop, from observation and consciousness, 
the laws of our moral constitution. Political Economy begins 
with the supposition, that man is disposed to accumulate 
wealth beyond what is necessary for the immediate gratifica- 
tion of his wants, and that this disposition, in the great major- 
ity of cases, is in fact unbounded; that man's inclination to 
labor is mainly controlled by this desh-e ; that he is constantly 
competing with his fellows in this attempt to gain wealth; 
and that he is sagacious enough to see what branches of in- 
dustry are most profitable, and eager enough to engage in 
them, so that competition regularly tends to bring wages, 
profits, and prices to a level. The science, then, is more 
closely allied with the Philosophy of Mind, than with Natm*al 
History, or the physical sciences. It has been called Catallac- 
tics, or " the Science of Exchanges " ; and, agreeably to this 
notion, man himself has been defined to be, an animal that 
makes exchanges ; " as no other, even of those animals which, 
in other points, make the nearest approach to rationality, has, 
to aU appearance, the least notion of bartering, or in any way 
exchanging one object for another." 

With regard to the articles that constitute wealth, we ob- 
serve that far the larger portion of them are perishable, or 
quickly consumable. Some of them, like the immaterial prod- 
ucts, are consumed at the instant that they are produced ; 
others, like articles of food, last a little longer, but perish if not 
quickly used. The fashion and the fabric of manufactured 
goods soon decay and pass away, the former being often more 
short>-Kved than the latter. Tools and machinery wear out; 
houses and other buildings need constant repair, and, at stated 
intervals, must be wholly renewed. Hardly anything but the 
solid land itself — the great God-given, food-producing ma- 
chine — is permanent ; and the exchangeable value even of the 
land, (the only quality of it which we have to consider in this 
science,) quickly diminishes, and almost whoUy disappears, if 
it be not kept up by the constant application of labor and cap- 
ital, or by the continued prosperity of the community who live 
upon it. The best situated land in a populous city may be 
worth $ 80 or $40 a square foot ; but if the other articles 



4 WEALTH AND ITS TRANSMUTATIONS. 

which constitute the wealth of that city — the ships in her 
harbor and the goods in her shops — were not perpetually re- 
newed, the land Avould deteriorate in value with gi'eat rapid- 
ity ; and if the city should become, in respect to population 
and business, a small and decaying village, the land might not 
be worth 1 40 an acre. 

"Wealth, then, — and we may crave attention to the propo- 
sition, for it is an important one, — wealth must be perpetu- 
ally renewed, or it quicldy disappears. The stock of national 
wealth is like the flesh, blood, and bones of a man's body, 
which are in a state of constant flux and renovation. Physi- 
ologists tell us that our bodies are entirely renewed about once 
in seven years ; but the riches of an opulent community are 
not so long-lived even as this. Let labor universally cease, let 
every man, woman, and child rest Avith folded arms, or do 
nothing but eat, di-ink, and be meiTy, and those riches would 
melt and waste like snow under a July sun. National wealth, 
then, may be more fitly compared to a given portion or section 
of the waters of a running stream, bounded by a few rods in 
length of the opposite banks. The water is always changing, 
yet in one sense is always the same, so long as the supply 
from above is maintained ; but if the springs in the upper 
countiy should be suddenly di'ied up, the efflux below would 
drain the channel in an hour. 

And here is one striking proof, among a thousand others, of 
the inordinate folly and ignorance of those who cry out against 
the institution of property, and call for an equal disti-ibution of 
all the wealth of a community among all its members. 
" Riches have wings " in a far more immediate and practical 
sense than these people are at all aware of. They always talk 
as if the national wealth was a fixed and imperishable quan- 
tity, like the land, the sunlight, and the air ; but as if, unlike 
these, it ^vas monopolized by a few, though really sufficient for 
the wants of all. Their blunder is quite as great as would be 
that of an ignorant rustic, who, after visiting the well-furnished 
market of a populous city on the Mondays of two successive 
weeks, and observing that the stalls presented almost precisely 
the same aiTay of meats and vegetables, in the same order, 
should conclude that there had been no change, and that, as 
here was a permanent stock of food enough for all, while some 



WEALTH AND ITS TRANSMUTATIONS. O 

families in the city were suffering from hunger, a general and 
equal distribution of this stock, without compensation to the 
owners, should be ordered, under the idea that it would make 
any futm-e want of provision impossible. The possibility that 
this great store might all be consumed in one day, that the 
dealers, deterred by this spoliation, might not supply the mar- 
ket at all on the next day, and that many indigent families, 
suddenly finding all their wants supplied without any effort on 
their part, would give up labor altogether, would never occur 
to him.* 

" This perpetual consumption and reproduction of capital," 
says Mr. J. S. Mill, " affords the explanation of what has so 
often excited wonder, — the great rapidity with which coun- 
tries recover from a state of devastation ; the disappearance, 
in a short time, of all traces of the mischiefs done by earth- 

* This point was admirably illustrated by the late Marshal Bugeaud, in an article 
published in the Revue des deux Mondes, soon after the French Revolution of 1848, 
when theories of Communism and Socialism were so rife, and were urged with so 
much violence, at Paris, as to menace the very existence of society. I borrow a few 
paragraphs from this admirable essay. 

" The philanthropic dreamers, the demagogues of every age and every country, 
have seemed to believe that there existed somewhere a great amount of riches given 
by God, which might suffice for all the world, if a few aristocrats had not, with mer- 
ciless selfishness, obtained possession of them. This idea is, unwittingly perhaps, 
the basis of all their systems, all their declamations 

" It is matter of astonishment that all eyes are not struck by the truth written, 
as it were, over the whole surface of the soil, — that there are no riches but those 
which are produced by the industry of every day, of every year ; that the riches al- 
ready produced, the fruit of labor also, are almost infinitely small in comparison 
with the wants of a society of thirty-six millions of souls ; that even if they should 
be taken from those who have them to be distributed to those who have nothing, or 
but a little, the condition of the latter would not be ameliorated ; far from that, they 
would be impoverished. The land alone, being created by God, might appear, at 
first sight, as wealth existing previously to labor, and belonging to all the world. 
This idea was true at the moment of creation, except that the land is not, in itself, 
wealth in the proper acceptation of the word ; it is only a vast arena for the labor of 
civilized man. In its primitive state, it can support only a few savages upon the 
fruits and roots of the forests. The value which it now has is what labor has given 
to it. How many ages, how much capital, how much toil, had to be buried in its 
bosom to produce that which we now see ! The most experienced agricul- 
turists say, that ' the land is nothing but a matrix, a mould, or an instrument of la- 
bor. If we were to calculate all that landed estates have cost to bring them into 
cultivation, not ever since man has labored upon them, but during only the last two 
centuries, we should find that the sum was much greater than the present value of 
those estates.' We refer now only to the extraordinary costs, such as those of clear- 
ing the ground, draining the marshes, carrying off the rocks and stones, transport- 
1* 



O WEALTH AND ITS TRANSMUTATIONS. 

quakes, floods, hurricanes, and the ravages of war. An 
enemy lays waste a country by fire and sword, and destroys or 
carries away nearly all the movable wealth existing in it ; all 
the inhabitants are ruined, and yet, in a few years after, every- 
thing is much as it was before. This vis medicatrix naturw 
has been a subject of sterile astonishment, or has been cited to 
exemplify the wonderful strength of the principle of saving, 
which can repair such enormous losses in so brief an interval. 
There is nothing at all wonderful in the matter. What the 
enemy have destroyed would have been destroyed in a little 
time by the inhabitants themselves ; the wealth which they so 
rapidly reproduce would have needed to be reproduced, and 
would have been reproduced, in any case, and probably in as 
short an interval. Nothing is changed, except that, dmung the 
reproduction, they have not now the advantage of consuming 
what had been produced previously. The possibility of a 

ing soil and mineral manures, planting trees and vines, building farm-houses, and 
furnishing cattle and the implements of husbandry. We must leave out the expenses 
of the ordinary annual cultivation of the ground, as that is repaid by the crops. 

" I will ask the men who have the incredible audacity to declare that property is 
robbery, if the ordinary laborer's wages for the week or the month are not sacred. 
They will answer, that certainly there is nothing more sacred in the world. Very 
well ! The labor of months, of years, of centuries, which has made property what 
it is, — is not this as sacred as the labor of a week or a month? Cease your blas- 
phemies, then, against property ; instead of saying that the first person who inclosed 
a field and cleared it for cultivation was a fool or a rogue, bless him, honor him, re- 
spect his work ; for without it, the human race would have perished, or, thinly scat- 
tered over the earth, would have lived in want and misery. 

" I think I have already demonstrated that there is no such thing as primitive 
wealth, existing antecedently to labor, since the land itself has become an article of 
wealth only under the active hand of man. It is equally true, that the wealth al- 
ready created is nothing ; that alone which the labor of every day and every year is 
constantly creating, is of great importance. 

" The principal articles of the wealth of a nation are, first, the products of the 
earth, which constitute the food of man and the raw material for his clothing ; and 
secondly, the manufactured articles in which he is dressed, and which give him the 
conveniences and comforts of life. 

" Now, are there any aristocrats who hold in their hands the hundred and forty 
millions of hectolitres of different sorts of grain, and the forty millions of hectolitres 
of wine, wool, hemp, flax, meat, oil, &c., which France must produce and consume in 
1849 ? Are there other aristocrats who own the household furniture, the tools, and 
materials, which are consumed in a single year ? No ; these must be produced by 
the incessant labor of all, or nearly all, persons in France. If their labor should 
cease only for a few months, the people would be naked and would die of famine ; 
for they have not a stock of wealth on hand large enough to keep them in supply 
during this respite." 



WEALTH AND ITS TRANSMUTATIONS. 7 

rapid repair of their disasters mainly depends on whether the 
country has been depopulated. If its effective population 
have not been extirpated at the time, and are not starved after- 
wards, [and if their exertions are not paralyzed by the dread 
of a similar quickly recurring calamity,] then, with the same 
skill and knowledge which they had before, with their land 
and its permanent improvements undestroyed, and the more 
dm-able buildings probably unimpaired, or only partially in- 
jured, they have nearly all the requisites for their former 
amount of production. If there is as much of food left to 
them, or of valuables to buy food, as enables them, by any 
amount of privation, to remain alive and in worldng condition, 
they will in a short time have raised as great a produce, and 
acquired collectively as great wealth and as great a capital, as 
before, by the mere continuance of that ordinary amount of 
exertion which they are accustomed to employ in their occu- 
pations. Nor does this evince any strength in the principle of 
saving-, in the popular sense of the term; since what takes 
place is not intentional abstinence, but involuntary privation." 

This pregnant truth, that the whole stock of national wealth 
is in a constant and rapid process of consumption and repro- 
duction, is generally lost sight of, because we see that the for- 
tunes of individuals, the aggregate of which constitutes the 
national stock, are comparatively permanent, and, as it seems, 
do not need to be perpetually renewed. If once raised consid- 
erably above a mere competence, and then " invested," as the 
phrase goes, with ordinary care and judgment, a man's prop- 
erty will continue apparently without change, all the while 
yielding its regular income or increase. If its owner be not a 
spendthrift, an inebriate, or a simpleton, it will supply his 
wants and gratify his tastes, and still grow by a steady process 
of accumulation, the savings of income being added to the 
capital, without ever encroaching upon his leisure, or requiring 
him to superintend a change of its form. How can this fact 
be reconciled with the principles that have just been stated re- 
specting the nature of all wealth ? The answer to this ques- 
tion brings us at once to the heart of the subject. 

It is the property, the ownership, that is unchanged, and thus 
the fortunes of individuals remain intact; the articles which 
are the subjects of that property — which are owned — are 



8 WEALTH AND ITS TRANSMUTATIONS. 

constantly changing; they are used up, and then renewed, 
without the owner's cooperation, and often even without his 
knowledge. Barring casualties, unlucky investments, and the 
like, (which, being comparatively few and infrequent, may be 
left out of the account,) no man's property is consumed with- 
out being replaced by the very act of consumption, unless he 
himself, consciously and wilfully, consumes or expends it urir 
productively ; — that is, upon the gratification of his own tastes 
and appetites, without looking for a return or replacement. 
To " invest" one's savings is to lend them. Not having time, 
incHnation, or perhaps ability, to use them reproductively to 
advantage, — that is, to superintend the constant changes of 
form which they must undergo, or quickly perish, — we lend 
them to others, who can and will dnect their transformations, 
on condition of receiving a smaU portion of the profits of these 
changes. For it is also the nature of wealth, when well man- 
aged, to grow, or increase, by each change of form. 

" Mobilitate yigetj viresque acquitit eundo." 

To make this clearer, we will analyze a single instance, — 
the simplest one that can be found. If the earnings of an arti- 
san for a year have amounted to $ 300, he may expend them all 
upon food, clothing, and amusement. In this case, he spends 
them all unproductively, — that is, without expecting a return 
or replacement of them. At the year's end, all the advantage 
which remains to him from his year's labor is, that his 
strength, health, and spirits are renewed or replaced, so that 
he can now go to work and earn another year's wages. 

But suppose that he is frugal and ambitious to grow rich. 
He will then contract his daily expenses, drink nothing but 
water, give up all amusements, and thus, at the end of the 
year, he will find that his health and spirits are even greater 
than before, and that he has saved perhaps $ 100, or one thfrd 
of his earnings. What will he do with this $ 100 ? In a rude 
state of society, among a half-civihzed people, or under the 
government of a Turkish pacha, property being insecure, he 
would probably obtain it in the form of gold or silver coin, and 
bury it in the corner of his cellar or garden. There, sure 
enough, it would remain without change, and therefore with- 
out income or increase. But in this country, in England, or 



WEALTH AND ITS TRANSMUTATIONS. \) 

France, he would probably put it in the Savings' Bank ; that 
is, he would lend it to the bank, which, for shortness, we will 
suppose to be a bank both of savings and discount. In conse- 
quence of this loan, the bank will be able to lend or discount 
$ 100 more to one of its customers. Suppose a baker wishes 
to extend his business, but has not capital enough of his own 
to buy more flour with. He borrows this $ 100 of the bank 
for four months, and with it he immediately purchases twenty 
barrels of flour more than he could otherwise have purchased. 
What he borrows of the bank is not, in fact, the $ 100 bill 
which is handed to him across the counter, but the twenty 
barrels of flour which he buys with it; the bank-bill being 
only a ticket or certificate, in which the bank directors say to 
the flour-dealer, " Deliver this man twenty barrels of flour, and 
we wiU pay you for it." The flom-dealer complies, and im- 
mediately carries back the bill to the bank, and is paid for it 
either in hard specie, or in that amount carried to his credit, or 
in any other form that he may prefer. We may put aside, 
then, in future, any consideration of the bank-bills ; for they 
are nothing but tickets of transfer, or orders from the bank to 
any merchant, asking him to deliver the bearer a certain 
amount of goods, and the bank will pay him for them. 

But let us follow the laborer's $ 100 of savings. In what 
form do they now exist ? Evidently they have become twenty 
barrels of flour, which the baker gradually transforms into 
many loaves of bread, and sells them to his customers. Be- 
fore the four months expire, the bread is all sold and eaten ; so 
that the % 100 are now fairly consumed. But has their value 
disappeared ? By no means. The baker's customers have 
paid him for this bread at least $ 120, so that he can now re- 
pay the bank the % 100 that he borrowed, with the addition of 
two dollars for four months' interest, and put eighteen dollars 
into his own pocket as the reward of his labor. The bank, 
being again in funds, can now lend, we will suppose, % 102 
worth of leather, for four months, to an enterprising cord- 
wainer, who begins immediately to manufacture it into boots 
and shoes. Before his four months have expired, these are all 
sold, (half of them, perhaps, are half worn out,) and he has re- 
ceived, it may be, $ 225 for them ; so that he can now repay 
the bank its loan of 1 102, besides two dollars and a fraction 



10 WEALTH AND ITS TRANSMUTATIONS. 

for interest, pay his workmen probably $ 100, for a good deal 
of labor was needed for the consumption of that amount of 
leather, and put a little more than twenty dollars into his own 
pocket. At the end of eight months, then, the bank has a 
little over ^ 104 to let out for another period of four months. 
A paper-maker borrows this, buys rags with it, makes paper 
out of them, sells it, and with the proceeds he pays the bank 
$ 106 and a fraction. 

The year has now expired, and our frugal laborer, having 
occasion to make a different use of his savings, goes to the 
bank for them, and receives $ 104.50, the bank retaining nearly 
two dollars as compensation for its agency in the affair. Thus 
the laborer finds that, by some process incomprehensible to 
him, the $ 100 which he deposited in the bank for a year has 
hatched 1 4.50, which it certainly would not have done if it 
had been simply locked up in the vault for safe-keeping. 
Could he have followed that process, he would have seen his 
$ 100 successively becoming, or assuming the shape of, flour, 
bread, leather, shoes, rags, and paper ; and in each of these 
forms, in turn, he would have seen it entirely consumed or 
used up. The flour, leather, and rags have been manufac- 
tured into corresponding articles, the bread has been eaten, the 
shoes are half worn out, and the paper is covered with writing 
and printing, so that a new supply of each is called for. 
There has been a net gain at each stage of the transaction, 
and the total gain has been fahly distributed among all the 
parties to it, compensating each for his labor or frugality. 

K any one thinks the instance here analyzed is a trivial or 
exceptional one, so that it throws little light on the general 
theory of wealth, let him look at the last annual returns made 
to the Legislature by all the Savings' Banks in Massachusetts, 
which show that the amount now deposited in those institu- 
tions exceeds $ 23,400,000 ; that it yields an annual average 
dividend of over 6| per cent ; and that the number of depos- 
itors exceeds 117,400, so that the average amount to the credit 
of each depositor is a fraction less than $ 200. This aggre- 
gate of savings — made up, be it remembered, by the labor 
and frugality of Msh domestics, small mechanics, operatives in 
great manufacturing establishments, day-laborers in the coun- 
try, and the like — is more than twice enough to build and 



WEALTH AND ITS TRANSMUTATIONS. 11 

keep in motion all the factories in Lowell ; as the aggregate 
capital of all the great manufacturing establishments in that 
city, in 1845, fell short of eleven millions. Observe, also, that 
large sums are annually withdrawn from these institutions, for 
productive investment in other ways, and the deficit thus made 
is immediately supplied by fresh deposits ; — so that these Sav- 
ings' Banks resemble great lakes, in which the water ever re- 
mains at the same level, though they are constantly supplying 
running streams, which bear a fertilizing influence with them 
all then- way towards the ocean.* 

We now go back to the principle first enunciated, and 
which seems to be firmly established ; — that the whole wealth 
of a civilized nation is in a state of constant flux and renova- 
tion, the apparent stability and unchangeableness of the for- 
tunes of individuals offering no exception to this principle. 
The instance analyzed also proves, that a gain, a profit, an ad- 
dition to the national stock, is made only at and by these suc- 
cessive changes of form. What is inconsumable is also 
necessarily unproductive. We consume in order that we may 
produce, and we must consume before we can produce. If 
Scripture may be reverently quoted on such a topic, " that 
which thou sowest is not quickened except it die." The 
wealth which is literally locked up or buried only rots or 
rusts ; and we might just as well bury only stones or sand in 
its place. But money or wealth is not locked up when placed 
in banks, institutions for savings, — moneyed corporations, as 
they are called, — and the like. These institutions are noth- 
ing but contrivances for collecting it, setting it in motion, and 
making it circulate around us like the atmosphere which we 
breathe. The wealth which w^ould otherwise be scattered in 
many little hoards, remaining idle because owned by those 
whose circumstances would not allow them to use it to advan- 
tage, or the separate sums being too small to admit of a profi1> 
able application, is, by these means, brought together and made 



* The whole amount deposited in the Savings' Banks of Great Britain and Ire- 
land, a year or two since, had risen to nearly $ 140,000,000, the number of individ- 
ual depositors being over one million. No one can deposit more than £ 150 in one 
of these institutions, and the sum is not allowed to accumulate to more than £ 200 ; 
the presumption being, that, for larger sums, other safe modes of investment can be 
found. 



12 WEALTH AND ITS TRANSMUTATIONS. 

as efficient as the vast accumulations of great capitalists. 
The aggregate thus formed is made to do its full part in sup- 
plying the lungs of industry, keeping it alive and active, and 
making all the parts of the body politic and social contribute 
to the sustenance and growth of the whole. The twenty-three 
millions in the Savings' Banks, and the fifty-seven millions of 
capital in the banks of deposit and circulation, (I speak only 
of Massachusetts,*) do not rest there, but are at this moment 
circulating around us, — driving the wheels of our factories, 
supplying oiu* mechanics with tools and our tradesmen with 
goods, building and freighting our ships, bringing to us the 
productions of all habitable climes, hmrying from one task to 
another with indefatigable ardor, and assuming a thousand 
different forms and hues, according to our necessities and de- 
sires. 

" Whatever a person saves from his revenue," says Adam 
Smith, " he adds to his capital, and either employs it himself 
in maintaining an additional number of productive hands, or 
enables some other person to do so, by lending it to him for 
an interest, that is, for a share of the profits." " What is an- 
nually saved is as regularly consumed as what is annually 
spent, and nearly in the same time too ; but it is consumed by 
a different set of people. That portion of his revenue which a 
rich man annually spends is, in most cases, consumed by idle 
guests and menial servants, who leave nothing behind them in 
return for their consumption. That portion which he annually 
saves, as, for the sake of the profit, it is immediately employed 
as a capital, is consumed in the same manner, and nearly in 
the same time too, but by a different set of people ; by labor- 
ers, manufacturers, and artificers, who reproduce, with a profit, 
the value of their annual consumption." 

* The rapid increase of capital in Massachusetts, as indicated by the Bank Re- 
turns, deserves notice. The statistics to illustrate the passage in the text were first 
collected in 1850; and then, the amount lodged in the Savings' Banks was only 
about thirteen millions, and the aggregate capital in the banks of deposit and circu- 
lation was but thirty-seven millions. Hence, in five years, the savings of people of 
moderate means have increased seventy-seven per cent, and bank capital has re- 
ceived an addition of fifty-four per cent. 



^^ 



THE AIMS AND ADVANTAGES OF POLITICAL ECONOMY. 13 



CHAPTEE II. 

THE AIMS, THE LIMITATIONS, AND THE ADVANTAGES OF THE 
STUDY OF POLITICAL ECONOMY : THE " LAISSEZ-FAIRE," OR 
" LET-ALONE " PRINCIPLE. 

We are now entitled to assume, that the theory of wealth is 
a large and complicated one, embracing many curious and 
difficult problems, and resting upon many general principles 
or laws, the discovery and development of which constitute a 
distinct and important science. One of these laws or general 
facts — the transmutations of capital — has been pointed out 
and briefly elucidated. And we perceive that it is a fruitful one, 
pregnant with important conclusions and inferences respecting 
the institution of property and the modes of favoring industry 
and increasing national wealth. If the science has been suc- 
cessfully cultivated, many more such general laws must have 
been discovered in it, a knowledge of which is all important to 
the statesman, the merchant, and the philanthropist. As Polit- 
ical Economy is expounded in the books, whether by Adam 
Smith, Ricardo, Sismondi, or Mill, it may, or may not, be weU 
founded and trustworthy in all its parts. Authorities differ on 
many points. But these men have not been studying a mere 
chimera, or wasting their energies in a vain pursuit. There are 
general laws affecting the production and distribution of wealth, 
whether they have been discovered or not, and a knowledge 
of these laws is a very different thing from the practical knowl- 
edge, the acquaintance with details, and the natural shrewd- 
ness, which enable a man to acquire property, and to take good 
care of it when acquired. 

And this leads me to remark, that Political Economy is not, 
as many suppose, the art of money-making, any more than 
meteorology is the art of predicting the weather. It is no art 
at all, but a science ; for its immediate end is knowledge, not 
action, or the guidance of conduct. The meteorologist says 
that the phenomena of the atmosphere and the weather, irreg- 
ular as they are in their occurrence, and obscure as to their 
2 



14 THE AIMS AND ABVANTAGES 

immediate causes, must depend on the general principles of 
gravity and the equilibrium of fluids, and must be referable to 
general laws, which are legitimate objects of investigation. 
He may have studied these laws successfully, and still not be 
so able as an old sea-captain is, who never opened a book on 
meteorology in his life, to tell what the weather will be the 
next hour or the next day. It is a point of as much interest 
and importance to know Jiow a storm occurs, as to know when 
it wiU occur. So, after one of those storms in the commercial- 
world which are known as " commercial crises," we may rea- 
sonably seek an explanation of the phenomenon, or the cause 
of its occurrence, though this knowledge should not enable us 
to tell when another and similar disturbance will happen. 

The general principles of any science are obtained only by 
abstraction, — by leaving out of view many of the details and 
particulars which actually belong to the case, and thus so far 
simplifying it that we can reason about it with facility. The 
conclusions at ^vhich we arrive by this process are very com- 
prehensive, but do not admit of immediate application. They 
are true only with certain qualifications and restrictions. They 
are involved in aU the phenomena to which they relate, and 
have a share in producing them ; but they do not determine 
the whole of these phenomena. 

Political Economy, Mr. Mill remarks, is a deductive science, 
so far as it reasons from assumptions, not from facts. " It 
supposes an arbitrary definition of a man, as a being who 
invariably does that by which he may obtain the greatest 
amount of necessaries, conveniences, and luxuries, with the 
smallest quantity of labor and physical self-denial with which 

they can be obtained in the existing state of knowledge 

It predicts only such of the phenomena of the social state as 
take place in consequence of the pursuit of wealth. It makes 
entire abstraction of every other human passion or motive, 
except those which may be regarded as perpetually antagoniz- 
ing principles to the desire of wealth, — namely, aversion to 
labor, and desire of the present enjoyment of costly indulgen- 
ces. These it takes, to a certain extent, into its calculations, 
because these do not merely, like other desires, occasionally 
conflict with the pursuit of wealth, but accompany it always, 
as a drag or impediment, and are therefore inseparably mixed 



OF POLITICAL ECONOMY. 15 

up in the consideration of it. Political Economy considers 
mankind as occupied solely in acquiring and consuming 
wealth ; and aims at showing what is the course of action into 
which mankind, living in a state of society, would be impelled, 
if that motive, except in the degree in which it is checked by 
the two perpetual counter-motives above adverted to, were ab- 
solute ruler of all their actions. Not that any one was ever 
so absurd as to suppose that mankind are really thus consti- 
tuted, but because this is the mode in which the science must 
proceed. 

" Political Economy, therefore, reasons from assumed prem- 
ises, — from premises which might be totally without founda- 
tion in fact, and which are not pretended to be universally in 
accordance with it. The conclusions of Political Economy, 
consequently, like those of Geometry, are only true, as the 
common phrase is, in the abstract ; that is, they are only true 
under certain suppositions, in which none but general causes 
— causes common to the whole class of cases under consider- 
ation — are taken into the account In proportion as 

the actual facts recede from the hypothesis, the Political Econ- 
omist must allow a corresponding deviation from the strict 
letter of his conclusion ; otherwise, it will be true only of 
things such as he has arbitrarily supposed, not of such things 
as really exist. That which is true in the abstract is always 
true in the concrete, with proper allowances. When a certain 
cause really exists, and, if left to itself, would infallibly pro- 
duce a certain effect, that same effect, modified by all the other 
concurrent causes, will correctly correspond to the result really 
produced." * 

All legislation which is designed to affect the economical 
interests of society, or which relates immediately to its com- 
merce, agriculture, or manufactures, is in truth an application 
of the principles of some system of Political Economy to prac- 
tice, be that system a wise or a mistaken one. It is often a 
very injmious application of them, because the circumstances 
which actually limit the principles are lost sight of, and the 
abstractions by which they were obtained are forgotten. Mis- 
chief results ; and " practical men," seeing that the consequen- 

* Mill's Essays on some Unsettled Queetions of Political Economy, pp. 137 - 145. 



16 THE AIMS AND ADVANTAGES 

ces do not square with the theory, call in question the science 
itself, instead of attributing the error to the faulty application 
of it. Hence arises an unhappy dissension between theory 
and practice, to the lasting detriment of both. 

The Political Economists themselves are somewhat to 
blame for this result, by pressing too eagerly for the reduction 
of their favorite doctrines to practice, without regard to the 
particular circumstances of each case. The general doctrine 
of Free Trade, for instance, which may be correct when ap- 
plied to two nations which are similarly situated in every 
respect, which have grown up under the same institutions and 
the same laws, and in which the profits of capital, the wages 
of labor, and the ratio of population to territory are nearly on 
a level, is extended by a hasty generalization to two countries 
that are contrasted with each other in all these respects, and 
in its application to which, to say the least, the correctness of 
the principle is very doubtful. We have in this country the 
largest extension of the system of free trade which the world 
has ever witnessed ; we have free trade between Maine and 
Louisiana, between California and Massachusetts ; and no 
one doubts that the system is equally beneficial to all these 
States. But before the system is carried out between England 
and the United States, we may reasonably inquire whether it 
will not necessarily tend to an equalization of profits and 
wages in the two countries, and whether it is desirable here to 
hasten the operation of the causes which are rapidly reducing 
the rates of both to the English standard. This subject will 
be considered hereafter ; but I may say here, that the question 
does not relate to the correctness of the general principle in 
economical science, but only to its applicability under partic- 
ular circumstances. That all terrestrial bodies gravitate to the 
centre of the earth, is a general law, which is not disproved by 
the floating of a cork in a basin of water. 

Another prejudice against Political Economy has arisen 
from an error of an opposite character ; — from too strict a lim- 
itation of it to the causes affecting the increase of national 
wealth, the other interests of a people being undervalued or 
left out of sight. The English Economists of Ricardo's school 
have most frequently fallen into this error ; looking merely to 
the creation of material values, they have tacitly assumed that 



OF POLITICAL ECONOMY. 17 

this was the only interest of society, the only end which legis- 
lation should have in view. The proposition on which they 
act, though they seldom directly enunciate it, is, that the aug- 
mentation of national wealth is at once the sign and the 
measure of national prosperity. We may admit that it is so, 
if the wealth he distributed with some approach to equality 
among the people. But if the vast majority of the nation is 
beggared, while enormous fortunes are accumulated by a few, 
— if pauperism increases at one end of the social scale as rap- 
idly as wealth is heaped up at the other, — then, even though 
the ratio of the aggregate wealth to the aggregate population 
is constantly growing larger, the tendency of things is down- 
ward, and, sooner or later, if a remedy be not applied, society 
will rush into degradation and ruin. 

In order to obtain a broader field of inquiry, the subject to 
be discussed in this volume will be, the general well-being of 
society, so far as this is affected by the moral causes regulating 
the production, distribution, and consumption of wealth. It may 
be doubted whether the whole of this theme is included within 
the limits of Political Economy, properly so called ; — and 
therefore I propose to consider not only the science itself, but 
its application to a particular case, — the circumstances and 
institutions of the American people. Thus is opened a wide 
scope for investigation. The fluctuations of national prosper- 
ity ; the various social condition of different communities at 
the same period, and of the same community at different peri- 
ods ; the nature, and effect upon the wealth, happiness, and 
numbers of the people, of the various institutions, laws, and 
customs which have obtained in different countries and at dif- 
ferent times, — might all pass in review before the subject would 
be exhausted. Hitherto, history has been in the main a polit- 
ical record, — a narrative of wars, conquests, and changes in 
the form of government. But the social economy of different 
states has now become the chief object of interest even to the 
historian. Statesmen have been obliged to make the study of 
politics second to that of political economy. Monarchs now 
strive to guard their thrones, not so much by the number and 
efficiency of their standing armies, as by the prudent manage- 
ment of their finances, and by their successful development of 
the agricultural, commercial, and manufacturing resources of 
2* 



18 THE AIMS AND ADVANTAGES 

their people. They build railways, form Customs-Unions to 
relieve trade of its fetters, establish colonies to get rid of sur- 
plus population, and thus aim to acquire or regain a firm basis 
for that authority which formerly rested only on prescription 
and military force. Men now coolly count the cost, the com- 
parative value in dollars and cents, of a monarchy and a re- 
public. The idea of political freedom, of choosing their own 
governors and managing their own affairs, is no longer attrac- 
tive enough to lead the people, if it be not united with some 
project for a new organization and a more equal enjoyment of 
the goods of this life. Hence the rise of so many schemes of 
Socialism and Communism, which gave a character to the 
Revolutions of 1848 wholly unlike that of any other political 
distm-bances recorded in the previous history of the world. 

Even if the disastrous consequences of the insane attempts 
then made to reorganize society should prevent a speedy repe- 
tition of the experiment, there is another danger, from which 
no civilized community is entirely free, — lest the several classes 
of which it is composed should cherish mutual jealousy and 
hate, which may finally break out into open hostiUties, under 
the mistaken idea that their interests are opposite, and that 
one or more of them possess an undue advantage, which they 
are always ready to exercise by oppressing the others. Twen- 
ty years ago. Archbishop Whately pointed out the full extent 
of this danger in a single pregnant qviestion : — " Can the la- 
boring classes, — and that, too, in a country where they have 
a legal right to express practically their political opinions, — 
can they be safely left to suppose, as many a demagogue is 
ready, when it suits his purpose, to tell them, that inequality 
of conditions is inexpedient, and ought to be abolished ; that 
the wealth of a man whose income is equal to that of a hun- 
dred laboring famiUes is so much deducted from the common 
stock, and causes a hundred poor famihes the less to be sus- 
tained ; and that a general spoliation of the rich, and an equal 
division of property, would put an end to poverty for ever ? " 
Under these circumstances, we may ask further. Can we safely 
neglect to explain and teach the great truths which Political 
Economy has demonstrated ; — that all classes of society are 
inseparably bound together by a community of interest ; that 
the prosperity of each depends on the welfare of all ; that the 



OF POLITICAL ECONOMY. 19 

national industry must be meagre and profitless in its results, 
if it has not capital or concentrated wealth to cooperate with 
it ; that an equal division of property would in fact destroy or 
dissipate that which was divided ; and that the only equality 
of condition which human nature renders possible, is an equal- 
ity of destitution and suffering? 

I need not apologize for the science which treats of the cre- 
ation of wealth, on the ground that it relates only to one of the 
lower interests of humanity, and that it is not of so much mo- 
ment for an individual or a society to be rich, as it is to be 
wise, free, instructed, and virtuous. It is true that wealth is 
one of the lower elements or supports of civilization, and that 
the comparative quantity of it is but an imperfect index of na- 
tional worth and national well-being. But it is also true, that 
wealth is that element of civilization which supports aU the 
others, and that, without it, no progress, no refinement, no lib- 
eral art would be possible. Without property, without large 
accumulations of wealth, no division of labor would be possi- 
ble ; and without division of labor, each man must provide by 
his own toil for all his bodily wants. He must plant, sow, 
and reap for himself. He must be his own tailor, shoemaker, 
housewright, and cook. The scholar could no longer devote 
himself exclusively to his books, the man of science to the ob- 
servation of nature, the artist to the canvas or marble, the 
physician to the cure of diseases, or the clergyman to the care 
of souls. All would be bound alike by the stern necessity 
of daily brutish toil on the most repulsive tasks. National 
wealth is a condition of progress, — a prerequisite of civiliza- 
tion. It is not in itself ennobling ; but it is that which vivifies 
and maintains aU the other elements and influences which dig- 
nify humanity and render life desirable. 

Even if popular ignorance and prejudice upon this subject 
were not dangerous to the state, a liberal curiosity would not 
rest satisfied without some knowledge of the laws affecting the 
creation and production of wealth, — laws which are, in truth, 
as constant and uniform as those which bind the material uni- 
verse together, and evince the wisdom and goodness of the 
Creator quite as clearly as any of his arrangements in the or- 
ganic kingdom. Blanco "White, speaking of the inattention of 
the ancients to the philosophy of wealth, compares their state 



20 THE AIMS AND ADVANTAGES 

of mind to that of children in the house of an opulent trades- 
man, who, finding the comforts and necessaries of hfe supplied 
to them with mechanical regularity, never inquire into the ma- 
chinery by which these effects are produced, or, if they ever do 
think about it, suppose that breakfast, dinner, and supper suc- 
ceed one another by the spontaneous bounty of nature, Uke 
spring, summer, and autumn. It is true, that men are usually 
selfish in the pursuit of wealth ; but it is a wise and benevolent 
arrangement of Providence, that even those who are thinking 
only of their own credit and advantage are led, unconsciously 
but surely, to benefit others. The contrivance by which this 
end is effected — this reconciliation of private aims with the 
public advantage — is often complex, far-reaching, and intri- 
cate ; and thus more strongly indicates the benevolent purpose 
of the Designer. In the instance aheady given, we have seen 
that the wealth of an individual, perhaps a sordid and covet- 
ous one, invested by him with a view only to his own advan- 
tage and security, and to spare himself the trouble of superin- 
tending it, stOl circulates through the community without his 
knowledge, supporting the laborer at his task, supplying means 
to the ingenious and the enterprising for the furtherance of 
their designs, and assuming with facility every shape which 
the necessities or the convenience of society may require. 

I borrow, with some abridgment, a simple and striking illus- 
tration of the same great truth from Dr. Whately. 

" Let any one propose to himself the problem of supplying 
with daily provisions of aU Idnds a city like London, contain- 
ing about two millions of inhabitants. Let him imagine him- 
self a head commissary, intrusted with the oflSce of furnishing 
to this enormous host their daily rations. A failure in the sup- 
ply even for a single day might produce the most frightful dis- 
tress. Some, indeed, of the articles consumed might be stored 
up in reserve for a considerable time ; but many, including 
most articles of animal food and many of vegetable, are of the 
most perishable nature. As a deficient supply of these, even 
for a few days, would occasion great inconvenience, so a re- 
dundancy of them would produce a corresponding waste. 
The city is also of vast pxtent, — a province covered with 
houses, — and it is essential that the supplies should be so dis- 
tributed as to be brought almost to the doors of aU the inhab- 



OF POLITICAL ECONOMY. 21 

itants. The supply of provisions for an army or garrison is 
comparatively uniform in kind ; but here, the greatest possible 
variety is required, suitable to the wants of the various classes 
of consumers. Again, this immense population is extremely 
fluctuating in numbers ; and the increase or diminution de- 
pends on causes of which some may, others cannot, be dis- 
tinctly foreseen. Again, and above all, the daily supplies of 
each article must be so nicely adjusted to the stock from which 
it is drawn, to the scanty or abundant harvest, importation, or 
other source of supply, to the interval which must elapse be- 
fore a fresh stock can be furnished, and to the probable abun- 
dance of the new supply, that as little distress as possible may 
be felt ; — that, on the one hand, the population may not un- 
necessarily be put on short allowance of any article, and, on 
the other, may be preserved from the more dreadful risk of 
famine, which must happen if they continued to consume 
freely when the stock was insufficient to hold out. 

" Now let any one consider this problem in aU its bearings, 
and then reflect on the anxious toil which such a task would 
impose on a board of the most experienced and intelligent 
commissaries, — who, after all, could discharge their office but 
very inadequately. Yet this object is accomplished, far better 
than it could be by any effort of human wisdom, through the 
agency of men who think each of nothing beyond his own im- 
mediate interest, — who, with that object in view, perform their 
respective parts with cheerful zeal, and combine unconsciously 
to employ the wisest means for effecting an object, the vast- 
ness of which it would bewilder them even to contemplate. 

" It is really wonderful to consider with what ease and reg- 
ularity this important end is accomplished, day after day, and 
year after year, through the sagacity and vigilance of private 
interest operating on the numerous class of wholesale, and 
more especially retail, dealers. Each of these watches atten- 
tively the demands of his neighborhood, or of the market he 
frequents, for such commodities as he deals in. The appre- 
hension, on the one hand, of not realizing all the profit he 
might, and, on the other, of having his goods left on his hands, 
— these antagonist muscles, regulate the extent of his dealings 
and the prices at which he buys and sells. An abundant sup- 
ply causes him to lower his prices, and thus enables the public 



22 THE AIMS AND ADVANTAGES 

to enjoy that abundance ; while he is guided only by the ap- 
prehension of being undersold. On the other hand, an actual 
or apprehended scarcity causes him to demand a higher price, 
or to keep back his goods in expectation of a rise. Thus he 
cooperates, unknowingly, in conducting a system which no 
human wisdom directed to that end could have conducted so 
well, — the system by which this enormous population is fed 
from day to day. 

" I say, ' no human wisdom ' ; for wisdom there siu'ely is, in 
this adaptation of the means to the result actually produced. 
In this instance, there are the same marks of benevolent design 
which we are accustomed to admire in the anatomical struc- 
ture of the human body. I know not whether it does not even 
still more excite our admiration of the beneficent wisdom of 
Providence, to contemplate, not corporeal particles, but ra- 
tional free agents, cooperating in systems not less manifestly 
indicating design, but no design of theirs ; and though acted 
on, not by gi-avitation and impulse, like inert matter, but by 
motives addressed to the will, yet accomplishing as regularly 
and as effectually an object they never contemplated, as if they 
were merely the passive wheels of a machine. The heavens 
do indeed ' declare the glory of God,' and the human body is 
fearfully and wonderfully made ; but man, considered not 
merely as an organized being, but as a rational agent and as a 
member of society, is perhaps the most wonderfully contrived 
product of Divine wisdom that we have any knowledge of." * 

It is on a large induction from such cases as this, that polit- 
ical economists rest their most comprehensive and most noted 
maxim, — the laissez-faire, or "let-alone" principle, — the doc- 
trine of non-interference by the government with the economi- 
cal interests of society. True, these interests are in the hands 
of individuals, who look only to their own immediate profit, 
and not to the public advantage, or to the distant future. 
They are not only selfish ; they are often ignorant, shori> 
sighted, and unconscious of much of the work that they do. 
But society is a complex and delicate machine, the real Author 
and Governor of which is divine. Men are often his agents, 
who do his worlc, and know it not. He turneth their selfish- 

* Whately's Lectures on Political Economy^ pp. 103-110. 



OF POLITICAL ECONOMY. 23 

ness to good ; and ends which could not be accomplished by 
the greatest sagacity, the most enlightened and disinterested 
public spirit, and the most strenuous exertions of human legis- 
lators and governors, are effected directly and incessantly, even 
through the ignorance, the wilfulness, and the avarice of men. 
Man cannot interfere with His work without marring it. The 
attempts of legislators to turn the industry of society in one 
direction or another, out of its natural and self-chosen channels, 
— here to encourage it by bounties, and there to load it with 
penalties, to increase or diminish the supply of the market, to 
establish a maximum of price, to keep specie in the country, — 
are almost invariably productive of harm. Laissez-faire ; " these 
things regulate themselves," in common phrase ; which means, 
of course, that God regulates them by his general laws, which 
always, in the long run, work to good. In these modern days, 
the ruler or governor who is most to be dreaded is, not the ty- 
rant, but the busybody. Let the course of trade and the con- 
dition of society alone, is the best advice which can be given 
to the legislator, the projector, and the reformer. Busy your- 
selves, if you must be busy, with individual cases of wrong, 
hardship, or suffering; but do not meddle with the general 
laws of the universe. 

The limitations of this " let-alone " principle are nearly as 
obvious as the principle itself. The office of the legislator is 
not, by his own superior wisdom, to chalk out a path for soci- 
ety to move in, but to remove aU casual and unnatural imped- 
iments from that path which society instinctively chooses for 
itself. It is to give wider scope and more facile action to the 
principle we have just been considering, rather than to hedge 
and narrow it by artificial limits or petty restrictions. Human 
laws, if wisely framed, are seldom mandatory, or such as re- 
quire an active obedience ; they are mostly prohibitive, or de- 
signed to prevent such action on the part of the few as would 
impede or limit the healthful action of the many. Vice and 
crime, for instance, are stumbling-blocks in the path of the 
community ; they obstruct the working of the natm'al laws, the 
ordinances of Divine Providence, by which society is held to- 
gether, and aU well-meaning members of it are made to coop- 
erate, though unconsciously, for each other's good. To remove 
such stumbling-blocks, then, is not to create, but to prevent, 



24 



THE AIMS AND ADVANTAGES 



interference with the natural order of things. Legislation 
directed to this end is only a legitimate carrying out of the 
laissez-faire principle. 

The enforcement of justice in the ordinary transactions be- 
tween man and man, which often requires further legislation 
than is needed for the mere prevention of open vice and crime, 
is another instance of the legitimate exercise of authority by 
the government. An individual may not erect a powder-man- 
ufactory in the midst of a populous village, nor carry on any 
operations there which would poison the air with noxious ex- 
halations. His neighbors would have a right to caU out to 
him, " Let us alone ; you endanger our lives, and prevent us 
from pursuing om* ordinary occupations in safety." 

These are internal impediments to the natural action of soci- 
ety, and as such the government is bound to put them out of 
the way ; its action for this purpose is widely distinguished 
from the enactment of sumptuary laws, the establishment of a 
maximum of price, prohibiting the exportation of specie, and 
other obvious infringements of the laissez-faire principle. But 
it is also the duty of the legislature to guard society against 
external dangers and hinderances. Men are separated into dis- 
tinct communities, the action of which upon each other is not 
so much restrained by law, or by the natural requisitions of jus- 
tice, as is that of individuals dwelling in the same community. 
The law of nations is a very imperfect code, and, from the 
want of any superior tribunal to enforce its enactments, it is 
very imperfectly observed. War is either a present evil to be 
averted or alleviated, or it is a possible future event, the occur- 
rence of which is to be guarded against. For either of these 
ends, the action of individuals within the community may 
need to be restrained ; for the safety of all, the freedom of aU 
to pursue their lawful occupations without let or hinderance 
is not to be imperilled through the avarice or recklessness of a 
few. Accordingly, not mere restraints upon importation, but 
an absolute prohibition of intercourse, an embargo on all navi- 
gation, are among the legitimate measures, a necessity for 
which is created by national dissension and hostility. 

Independent communities are not always at war with each 
other ; but they are always rivals and competitors in the great 
market of the world. This feeling of rivalry is whetted by the 



OF, POLITICAL ECONOMY. 25 

different circumstances under which they are placed, by the pe- 
culiarities in the condition of each, and by the opposition of 
interests which often grows out of these peculiarities. The 
legislation of each state is primarily directed, of course, to the 
protection and promotion of the interests of its own subjects ; 
and thus it often injuriously affects the interests of other na- 
tions. There is, therefore, a good deal of retaliatory legisla- 
tion on the part of different governments. There is often, on 
both sides, a keen measure of wits in devising commercial reg- 
ulations which shall affect, or render nugatory, measures 
adopted by the rival nation, not exactly with a hostile intent, 
but with an exclusive view to its own interests, and therefore 
frequently with an injurious effect upon the interests of others. 
Reciprocity treaties, as they are called, are sometimes formed, 
to obviate the evil effects upon both parties of this keen spu'it 
of competition, when pushed too far. Now, such retaliatory 
legislation, so far as it operates upon the members of the very 
community from which it emanates, so far as it limits or re- 
strains the action of aU or a portion of them, is not an infringe- 
ment, but an application, of the laissez-faire principle. It is 
designed to procure for them a larger liberty than they would 
otherwise enjoy ; if it is effectual, if it answers its purpose, it 
removes an impediment created by a foreign state far more se- 
rious and extensive than the obstruction which it imposes. It 
may, indirectly and incidentally, turn industry from one chan- 
nel to another, and make some changes in the investments of 
capital. But this change is effected only by opening one chan- 
nel, which would otherwise, under the effects of foreign com- 
petition, have remained entirely closed, and by rendering it 
possible and profitable to turn capital to other uses than those 
to which it was formerly limited. 

If we suppose that the application of native industry and 
capital is restricted in its range, not by the legislative pohcy 
knowingly adopted by a foreign state for this very purpose, but 
through the superior natural advantages possessed by that 
state, the same principle still governs the result. By submit- 
ting to a small restraint imposed at home, we get rid of a 
much larger obstacle to our freedom of action, created either 
by the commercial regulations, finer climate, more fertile soil, 
more abundant capital, or larger skiU and experience of a rival 
3 




86 THE AIMS AND ADVANTAGES 

community. The policy of states leads them to seek indepen- 
dence of each other in their economical, almost as much as in 
their political, relations ; or we might better say, that poHtical 
independence — that is, the enjoyment of distinct institutions 
and laws, chosen and established by ourselves — makes it still 
more desirable and necessary than it was before, that we should 
not be entirely dependent upon foreigners for the supply of 
great articles of consumption of prime necessity, — that we 
should have within om* own borders, and under our own con- 
trol, the means of satisfying all our natural and imperative 
wants. It is not even desirable that Massachusetts and Oliio 
should be rendered so far independent of each other, that each 
could obtain from its own soil, or by the labor of its own in- 
habitants, all that it can need ; for these two States are one in 
most of their political relations. Members of the same great 
confederacy, living under the same laws, and each exercising 
its due share of influence in the national legislature, neither 
has cause to apprehend the hostile or injurious action of the 
other. The political ties between them a^e sti'engthened by 
their dependence on each other for a supply of many of the 
necessaries of civilized existence. But it is desirable that both 
should be independent, as far as may be, of the great powers 
of Europe, with whom they cannot be sure of continued 
friendly intercourse for any time beyond the present, and from 
whom they are always separated by a great breadth of ocean, 
and by dissimilarity of customs, institutions, and laws. 

True independence, in an economical point of view, does 
not require us to forego all commercial intercourse wdth other 
nations ; this would be rather a curse than a blessing. But it 
does require that each nation should be able to exercise, with- 
in its own limits, all the great branches of industry designed to 
satisfy the wants of man. It must be able to practise all the 
arts which would be necessary for its own well-being, if it were 
the only nation on the earth. If it be restricted to agricultui-e 
alone, or to manufactures alone, a portion of the energies of its 
people are lost, and some of its natural advantages run to 
waste. To be so limited in its sphere of occupation, to be 
barred out from some of the natural and necessary employ- 
ments of the human race, through the overwhelming competi- 
tion of foreigners, is a serious evil, which it is the object of a 



OF POLITICAL ECONOMY. 27 

protective policy to obviate or redress. On whatever other 
grounds this policy may be objected to, it is surely not open to 
the charge of being an infringement of the laissez-faire princi- 
ple, or a restriction of every man's right to make such use as 
he pleases of his own industry and capital. Its object is not 
to narrow, but to widen, the field for the profitable employ- 
ment of industry, and to second the working of the beneficent 
designs of Providence in the constitution of society, by remov- 
ing all artificial and unnecessary checks to their operation. 

I repeat it, then, that these designs, as shown in the econom- 
ical laws of human nature, (i. e. in the principles of Political 
Economy,) through their general effects upon the well-being 
of society, manifest the contrivance, wisdom, and beneficence 
of the Deity, just as clearly as do the marvellous arrangements 
of the material universe, or the natural means provided for the 
enforcement of the moral law and the punishment of crime. 
The lowest passions of mankind, ostentation and ambition, 
petty rivahy, the love of saving and the love of gain, while 
they bring their own penalty upon the individual who unduly 
indulges them, are still overruled for good in their operation 
upon the interests of society ; — nay, they are made the most 
efficient means of guarding it from harm, and advancing its 
welfare. In the vast round of employments in civiKzed soci- 
ety, there is hardly one in which a person can profitably exert 
himself, without at the same time profiting the community in 
which he lives, and lending aid to thousands of human beings 
whom he never saw. "We are aU servants of one another 
without wishing it, and even without knowing it ; we are all 
cooperating with each other as busily and effectively as the 
bees in a hive, and most of us with as little perception as the 
bees have, that each individual effort is essential to the com- 
mon defence and general prosperity. " This dependence and 
combination," says McCuUoch, "is not found only or princi- 
pally in the mechanical employments ; it extends to the labors 
of the head as well as those of the hands, and pervades and 
binds together aU classes and degrees of society." 



28 THE PRODUCTION OF WEALTH: 



CHAPTER III. 

HOW WEALTH IS CREATED, AND WHAT CONSTITUTES EXCHANGB- 
. ABLE VALUE. 

A DISTINCTION has already been briefly pointed out between 
wealth and property. Wealth consists of the aggregate of ar- 
ticles, chiefly material or tangible, though some immaterial 
products are ranked among them, which supply the wants and 
satisfy the desires of man ; and the stock of national wealth 
" is kept in existence from age to age, not by preservation, but 
by perpetual reproduction. Every part of it is used or de- 
stroyed, — generally very soon after it is produced ; but those 
who consume it are employed meanwhile in producing more," 
— not only enough to replace what is consumed, but to furnish 
a surplus, or profit. Property is the ownership of these arti- 
cles, and often remains unchanged, or fixed, for many genera- 
tions, — just as the river continues, though the water is perpet- 
ually running out of it into the sea. 

As the articles change while the ownership continues, there 
must be evidences of that ownership, or " tickets of transfer," 
as I have once called them, — mere representatives of wealth, 
which command a price in the market, and are often sold, but 
which, in themselves, form no addition to the national wealth. 
Notes and mortgages, bank-bills, bank-stock, stock in any cor- 
poration or in the national debt, are such representatives. 
They are mere evidences that the person holding them is the 
owner of a larger or smaller portion of those articles which 
really constitute wealth ; and their value to him consists only 
in the fact that they enable him, whenever he sees fit, to re- 
claim his property, or to take possession of those articles which 
actually belong to Mm, though for a time he has trusted them 
to others. The national wealth, therefore, does not consist of 
the land, the houses, the manufactured goods, &c., plus the 
public funds, bank-stock, and the like. These funds and stocks 
are not wealth in themselves, but are certificates of ownership 
of those articles which really constitute riches. Nay, if any 



THE NATURE OF EXCHANGEABLE VALUE. 29 

portion of these stocks is held by foreigners, the aggregate 
wealth of the community does not consist even of the whole 
amount of those articles within its territory which are properly 
considered as wealth, but only of that amount minus the evi- 
dences of indebtedness to foreigners. If I buy $ 1,000 worth 
of government securities, I really lend 1 1,000 to the govern- 
ment, which, in return, mortgages to me a portion of its reve- 
nues, or of the sum which it annually raises by taxation. 
This sum is that portion of the valuable articles annually cre- 
ated by the labor of the community which the government 
appropriates to itself, as a compensation for the care and pro- 
tection which it affords. What I really own, then, is this 
share of the useful articles annually produced by the labor of 
the whole people, \vhich is transferred, first by the people to 
the government, and then by the government to me. The 
scrap of paper, called " pubKc stock," which I hold, is of no 
value whatever, except as it enables me to claim without dis- 
pute my share of this annual product. 

These truths are elementary and sufficiently obvious ; but it 
was necessary to state them in order to clear the ground for 
the solution of the problem with which we are now concerned : 
— Wliat are the essential qualities of wealth, and how is it cre- 
ated ? How is it, that the national stock of wealth, which we 
are perpetually consuming, is yet perpetually reproduced, and 
that, too, with a profit, or constant enlargement, so that the 
stock at the end of the year is considerably larger than it was 
at the year's commencement ? 

As soon as we clearly perceive that wealth consists exclU" 
sively of those useful articles, chiefly material or tangible, 
which have been indicated, and that we have nothing to do 
with the intricate complications of property which arise from 
the dealings of men in the banks and the stock market, the an- 
swer to this question becomes very easy. Wealth is created 
by devoting human labor to the production and fashioning of 
these useful articles ; — by tilling the ground and raising har- 
vests of food and of the raw materials for manufacture ; by 
spinning, weaving, and sewing ; by erecting houses, working 
mines, and building ships ; by any and every application of in- 
dustry which is essential to the full enjoyment of these articles, 
or which has directly or indirectly concurred in their formation. 
3* 



30 



THE PRODUCTION OF WEALTH : 



Human labor, whether skilful or unskilful, whether applied 
alone or artfuUy assisted by natural agents, is the means ; 
wealth is the product. "Whatever is necessary in order that 
the workman may apply himself more directly and successfully, 
and with less interruption, to his task, must be considered as a 
portion of the industry wliich concurs in the formation of the 
article produced by that workman. 

Thus, he must feel secure in his employment, — secure 
against violence, robbery, or any improper or wrongful inter- 
ruption of his labor. Government affords him this security, 
and is, to this extent, a feUow-producer with him, so that it 
rightfully claims a share — a very small share — of the finished 
product. " On the governor, and those with whom he is asso- 
ciated, or whom he appoints," says Mr. Senior, " is devolved 
the care of defending the community from violence and fraud ; 
and so far as internal violence is concerned, and that is the evil 
most dreaded in civilized society, it is wonderful how small a 
number of persons can provide for the security of multitudes. 
About 15,000 soldiers, and not 15,000 policemen, watchmen, 
and officers of justice, protect the persons and property of the 
18 milfions of inhabitants of Great Britain. There is scarcely 
a trade that does not engross the labor of a greater number of 
persons than are employed to perform this most important of 
all services." 

The cooperation which the laborer requires, in a highly civ- 
ilized community, for the completion of his task, in order to 
present the article in a state fit for use, is far more extensive 
than we are apt, at first sight, to imagine. Thus, bread is a 
finished product, the total value of which must compensate a 
long line of laborers who have concurred in its formation. 
The tradesman who brings it to your door ; the baker ; the 
miUer ; the farm laborers who plough, sow, and reap ; the farmer 
or land-owner ; and aU the artisans who have fabricated aU the 
tools and instruments used by these persons, — must all have 
their share of the price finally paid for the bread which is fully 
prepared to be eaten. The extensive cooperation of employ- 
ments, produced by the minute subdivision of labor, is the most 
striking feature of modern civilization. The object of this im- 
mense subdivision is to secure the greatest possible efficiency 
of labor, — that everything may be produced on the spot best 



THE NATURE OF EXCHANGEABLE VALUE. 31 

suited for its production ; that every step in the process of its 
manufacture may be taken by the person most capable of tak- 
ing it to advantage, and under the most favorable cu-cumstan- 
ces ; and that the article itself, when finished, may be adapted, 
even in the slightest particulars, to the wants, tastes, and con- 
venience of those who are to use it. The value which may 
be added to the article by the numerous steps of this long pro- 
cess may be very great. " We should probably be understat- 
ing the difference," says Mr. Senior, " if we were to say that 
the last price was a thousand times the first. The price of a 
pound of the finest cotton-wool, as it is gathered, is less than 
two shillings. A pound of the finest cotton lace might easily 
be worth more than a hundred guineas." 

We gain another view of this marvellous cooperation of in- 
dividuals, designed to make labor most efficient, by searching 
out the history, analyzing the cost, and tracing the processes 
of manufacture, of aU the articles of our own daily consump- 
tion. We think it fittle to sit down to a table covered with 
articles fi:om all quarters of the globe and from the remotest 
isles of the sea; — with tea from China, coffee fi-om Brazil, 
spices fi'om the East and sugar fi-om the West Indies, knives 
fi:om Sheffield, made with iron from Sweden and ivory fi:om 
Africa, with silver fi'om Mexico, and cotton fi'om South Caro- 
fina, all being lighted with oil brought from New Zealand or 
the Arctic Circle. Still less do we think of the great number 
of persons whose united agency is required to bring any one 
of these finished products to our homes ; — of the merchants, 
insurers, sailors, ship-builders, cordage and sail-makers, astro- 
nomical-instrument makers, men of science, and others, who 
must concur before a pound of tea can appear in our market. 
In view of these circumstances, it is no exaggeration to say, 
that the humble artisan, who spends his fife, to adopt Adam 
Smith's iUustration, in making the eighteenth part of a pin, 
and is hardly fitted for any higher employment, still taxes the 
industry of half the human race, and lays under contribution 
the four quarters of the globe, to supply his daily wants. 

How is it, that while, in these days, men will not often labor 
for nothing, and while the artisan himself produces nothing 
but the fraction of a pin, he is still able to consume so great 
a variety of products, and to make the industry of so vast a 



32 THE PRODUCTION OF WEALTH : 

multitude tributary to his comforts. The answer may be given 
in one word ; — by exchange. As human labor is the only mo- 
tive power, so capability of exchange is the sole dhecting 
agent, in the great social machine for the production of wealth. 
The immediate measure of the wealth, when produced, is, not 
its utility, but its exchangeable value ; and Pohtical Economy 
itself, as I have aheady remarked, has been denominated Cat- 
allactics, or the Science of Exchanges. 

We come, then, to an analysis of exchangeable value, in or- 
der to find a basis for a theory of wealth. "What is it that 
constitutes value in exchange, and why do various articles 
possess it in such unequal proportions ? The answer is, that 
exchangeable value consists of two elements, — utility, and 
difficulty of attainment. The article valued must in some 
measure be useful ; that is, it must be adapted to satisfy, either 
directly or indirectly, some natm-al want or artificial desire of 
men ; and it must also be more or less difficult to be had. 
These elements may coexist in very different proportions ; but 
in one degree or another they must both be present, or the ar- 
ticle has no value in exchange. It may, for instance, be very 
useful ; it may be an article of prime necessity, absolutely es- 
sential to the existence of man. Yet if there be no diflficulty 
in the way of its attainment, if, like the air, the water, and the 
sunlight, the supply of it be inexhaustible and open to all the 
world, then it has no exchangeable value. It forms no part of 
what is usually called wealth. Supply the element which was 
lacking, — only make the article hard to be procured, as water 
is, in the midst of the sandy desert of Sahara, or as air was to 
Mr. HolweU and his companions in the Black Hole at Cal- 
cutta, and men will give all that they have in the world for a 
single draught of either. On the other hand, it may be very 
difficult of attainment ; it may, like some of the most refined 
products of chemical analysis, require the labor of years, the 
greatest scientific skill, and an expenditure of the most costly 
materials, before it can be procured. Yet if it be not useful, 
if it do not satisfy some want or desb-e, however artificial or 
irrational that desire may be, it commands no price in the mar- 
ket ; it has no exchangeable value. 

But we do not here speak of abstract utihty, or of that util- 
ity which is determined by reason and measured by a pliilo- 



THE NATURE OF EXCHANGEABLE VALUE. 33 

sophical standard. Utility here means nothing but fitness or 
capability to satisfy any desire of men, however unreasonable, 
extravagant, or capricious that desire may be. If men are so 
foolish as to prize highly many articles which answer no pur- 
poses but of vain ostentation or gross and sensual enjoyment, 
it is not for the political economist, who views things only as 
they are, not as they ought to be, to censure their folly. He 
leaves this office to the moralist or the preacher. The fact 
that such articles are coveted, from whatever motive, is enough 
to bring them within liis definition of wealth ; which defini- 
tion, it is evident, only expresses the common sentiment of 
mankind. 

One factitious desire, it is curious to observe, is created 
solely by the difficulty of obtaining its object. Thus, books, 
coins, and shells are often prized merely from their rarity, or 
the difficulty of procuring duplicates of them ; and in the case 
of books this passion has gone so far, that it has been aptly 
called bibliomania, or book-madness. An old volume, which, 
for all the proper purposes of a book, is absolutely worthless, 
since no person in his senses would ever think of reading it, if 
it happens to be what is called a unique copy, may command 
a price equal to that of a fine painting by one of the old mas- 
ters. And this last instance shows also, that the want or taste 
which the article gratifies, and in gratifying which its utUity, 
and consequently its exchangeable value, consists, may not be 
a common one, — may be shared, in fact, only by a very few 
persons in the community. Very few, certainly, are capa- 
ble of appreciating a Raphael or a Correggio, or of seeing in 
it those beauties which make it command a price equal to a 
king's ransom. 

As the words value and utility are often used in the moralist's 
sense, or according to their philosophical import, it is neces- 
sary to give this caution once for all ; — that whenever in fu- 
ture they are here used, they must be understood only in their 
politico-economical sigmfication. By value, we mean only ex- 
changeable value ; by utility, we mean only that utility which 
is an element of wealth, and which consists in fitness to satisfy 
any want or desire, however irrational, that is felt by any num- 
ber of men. 

This analysis of value, this explanation of what wealth is, 



34 THE PRODUCTION OF WEALTH : 

leads us immediately to an understanding of the manner in 
which wealth is created. As the essence of value consists in 
difficulty of attainment, so the labor which overcomes that dif- 
ficulty is the gi'cat means of producing value, or creating 
wealth ; and everything which diminishes that difficulty is to 
be considered as labor, — is entitled to be called by that name, 
for it is recognized and compensated as such by the commu- 
nity. And here is the great paradox of Political Economy : — 
value depends on difficulty of attainment; the only way of 
creating values is to lessen or overcome that difficulty ; but as 
soon as all difficulty is overcome, when there is no longer any 
obstacle in the way between man and the gratffication of his 
desire, then value also disappears, and the boundless wealth, 
which seemed just within our grasp, is suddenly changed, as 
by a magical incantation, into di'oss or nothingness. Every 
step taken towards removing the difficulty is a step in advance, 
— a production of wealth, — an addition to our individual store 
and to the national opulence. But just when we have taken 
the last step, and reached the spot where we had fondly sup- 
posed that unbounded riches would be our reward, the vision 
changes, and aU our supposed wealth — both that which we 
had hoped to gain by this last step, and that which we had 
previously acquired — becomes an airy nothing. Thus to 
poor mortals engaged in the pursuit of riches is reahzed the 
fable of Sisyphus, and an instructive moral is inculcated. 

" With many a weary step and many a groan, 
Up the high hill he heaves a huge round stone ; 
The huge round stone, resulting ■with a bound, 
Thunders impetuous down, and smokes along the ground." 

This paradox is not created merely by an abuse of abstract 
definitions and theoretical reasoning. The seeming contradic- 
tion is a literal fact, as may be clearly shown by a practical 
illustration. And that I may not be accused of bringing an 
obscure or far-fetched example, I will take that which, in aU 
ages and all countries, has been recognized as preeminently an 
article of value, and identified with wealth itself. Gold surely 
possesses the highest value in exchange, and is eminently dif- 
ficult of attainment. The story, first promulgated in the win- 
ter of 1848-9, that it abounded in the soil of California, 
caused as much excitement and agitation in this country, and 



THE NATURE OF EXCHANGEABLE VALUE. 35 

indeed tliroughout the civilized world, as w^ould have been cre- 
ated by another battle of Waterloo, or by the reappearance of 
Napoleon from the tomb. The story proved to be well found- 
ed ; and the consequence was, that within six months tens of 
thousands of our enterprising countrymen were either wending 
their toilsome way over the great steppes of our Western desert, 
and through the frightful passes of the Sierra Nevada, where 
the route was strewed with the whitened bones of their prede- 
cessors who had perished of starvation, or were encountering 
the manifold perils of a four months' voyage round Cape 
Horn, in the hope of making their fortunes in this new El 
Dorado. Did it ever occur to one of them, that their hopes 
would be just as much frustrated by finding that the precious 
metal there was too plentiful, as by ascertaining that it was 
not to be found at aU ? But suppose that the most exagger- 
ated reports had been correct, — that all the rocks of the Sierra 
Nevada itself were composed in great part of gold, — that there 
were gold mountains in California, just as there are iron moun- 
tains in Missouri. Is it not certain, that the value of gold all 
over the world, almost at once, would sink to about the same 
point with iron ? Then carry the supposition one step farther, 
— the last step that I have spoken of. Imagine that it is not 
necessary to go to California for this metal, but that our own 
streets are paved and our gutters lined with gold, which also, 
in lumps, strews the whole face of the country. Is it not evi- 
dent, that it would instantly become as valueless as the stones 
and dirt which now cover our streets and roads ? 

How vain, then, is it to expect that wealth can ever be cre- 
ated without labor, which is its natural and necessary price ! 
Gold is now so precious precisely because so much labor is re- 
quired to obtain it. What a pity it is that the old alchemists, 
many of whom were the most learned men of then* times, and 
who wasted fortune and life in their vain pursuit, could not have 
foreseen that the philosopher's stone, when discovered, would 
be as worthless as another stone, which should have the prop- 
erty of tm-ning everything it touched into granite ! 

The useful metals, generally, possess value just in proportion 
to the fewness and unproductiveness of the mines whence they 
are obtained, and to the labor required for bringing them to 
market and giving them the forms and qualities that fit them 



36 



THE PRODUCTION OF WEALTH 



for use. Iron in this country owes nearly all its value to the 
labor expended in extracting it from the ore and manufactur- 
ing it ; for iron ore is so plentiful, that, except in a few favor- 
able localities, where fuel is abmidant and transportation easy, 
an acre of gromid with iron ore for its surface is worth hardly 
as much as the same extent of fertile land. Yet fine steel cut- 
lery and watch-springs, which are only iron in a highly finished 
state, sell at a liigh price by the ounce. Copper, again, bemg 
more rare, and the mines of it less productive, owes its value 
chiefly to its scarcity, or the labor required for finding it and 
bringing it from a distance. The cliief fear for oiu- copper 
miners on the shores of Lake Superior is, lest they should find 
the metal too abmidant. Yet it is so natural an illusion to 
believe that the high value of these metals in their manufac- 
tured state attaches to them also when they are in the ore, that 
a mining mania is more easily excited in the commmiity than 
any other speculative bubble. The dupes are satisfied by the 
full proof which is otl'ered them, that the ore is very abundant. 
They had better also comit the cost of the labor required for 
extracting it and bringing it to market. The most productive 
mine which a man can work is situated on liis own farm. 

What I have called the paradox of political economy, like 
the hydrostatic paradox, is really very simple, and admits of an 
easy explanation. Li proportion as the labor required for ob- 
taining any useful article is diminished, and the article itself 
consequently becomes very common, in that proportion it ap- 
proximates the character of those invaluable gifts of Provi- 
dence, the air, the water, and the smilight, wliich, because they 
are common and inexliaustible, have natiual, but no exchange- 
able, value. They become natural wealth, they cease to be 
artificial wealth. Man does not, in the economical sense, I'alue 
them, or consider them as wealth, because he is not able to 
exchange them for other tlungs which can only be procured by 
labor ; or in other words, he camiot purchase labor with them. 
The possession of them conveys no distinction, does not exalt 
one above his fellows, gives no power over other men. Each 
of them satisfies one imperative want, and in this respect is 
truly /^valuable ; but it does not possess that quality which is 
characteristic of all articles that are usually considered as 
wealth ; — any one of these may be bartered for more or less 



THE NATURE OF EXCHANGEABLE VALUE. 37 

of any article or product whatsoever that the possessor may 
desire. We are wont to consider money as the universal me- 
dium of exchange, though it is only a contrivance for facilitat- 
ing it ; this is a consequence of the popular delusion which 
confounds money with wealth. Any portion of wealth, any ar- 
ticle of value, is, like Fortunatus's wishing-cap, a means of 
obtaining, to the extent of its value, whatever other article we 
may desire ; — the contrivance of money rendering the process 
of obtaining it by exchange a very simple one. This Protean 
character of wealth, this capability of satisfying whatever want 
or whim the heart of man can conceive, is, like the ductility of 
gold, its most peculiar and attractive quality. 

And here we perceive the explanation of the fact which has 
so often been a topic of complaint, that the pecuniary wages 
or earnings of scientific and literary men are, with a few rare 
exceptions, very inconsiderable. " Had the taste for study," 
as McCulloch remarks, " depended only on the pecuniary emol- 
uments which it brings along with it, it may well be doubted 
whether it would ever have found a single votary ; and we 
should have been deprived, not only of very many of our most 
valuable and important discoveries in the arts, as well as in 
philosophy and legislation, but of much that refines and exalts 
the character, and supplies the best species of amusement." 
The inadequacy of the pecuniary compensation of these per- 
sons " arises from a variety of causes ; but principally, perhaps, 
from the indestructibility, if we may so term it, and rapid cir- 
culation, of their works and inventions. The cloth of the 
manufacturer and the corn of the agriculturist are speedily 
consumed, and there is therefore a continual demand for fresh 
supplies of the same articles. Such, however, is not the case 
with new inventions, new theories, or new literary works. 
They may be universally made use of, but they cannot be 
consumed. The moment that the invention of logarithms, the 
mode of spinning by rollers, and the discovery of the cow-pox 
had been published, they were rendered imperishable, and ev- 
ery one was in a condition to profit by them. It was no 
longer necessary to resort to their authors. The results of 
their researches had become public property, had conferred 
new powers on every individual, and might be applied by any 
one." As they can no longer be appropriated, the difficulty of 
4 



So THE PRODUCTION OF WEALTH : 

attaininent, which is a necessary element of artificial wealth, is 
entirely removed ; they therefore cease to possess exchange- 
able value, and become a part of what we have called the 
natural wealth of mankind. 

Observe, moreover, that it is in the highest departments of 
literatm-e and science that labor is most imperfectly remuner- 
ated ; in those of a lower rank, in adapting to popular com- 
prehension and purposes of practical utility the ideas and 
discoveries of others, tact and industry may often reap a con- 
siderable pecuniary reward. Hence, invention is usually more 
profitable than discovery ; a new machine may create a for- 
tune for its inventor, whilst the discoverer of those abstract 
principles of science, or general laws of nature, which are ap- 
plied in the mechanical improvement, or are presupposed in 
the construction of it, can obtain no compensation but the 
fame of his labors and the gratitude of posterity. No one 
thinks of rewarding the heirs of Franklin and CErsted for those 
discoveries in electricity and electro-magnetism to which we 
are primarily indebted for the lightning-rod, the electrotype, 
and the magnetic telegraph. Ideas cannot be patented, or ex- 
clusively appropriated ; but machines may be. So also in 
authorship, as McCulloch observes, "though a work should 
have the greatest influence over the legislation of the country 
or the state of the arts, it may redound but little to the advan- 
tage of the author. It is not so much on the depth, original- 
ity, and importance of its views, as on the circumstance of its 
being agreeable to the public taste, that the success, and conse- 
quently the productiveness of a book to its author, must de- 
pend. Many a middling novel has produced more money 
than the ' Principia ' or the ' Wealth of Nations ' ; and in this 
respect, the ' Decline and Fall of the Roman Empire ' has been 
far inferior to the ' Arabian Nights.' " 

The conversion of artificial into natural wealth, an apparent 
loss in exchangeable value being a real gain to the whole com- 
munity, may be further illustrated by an example borrowed 
from Mr. Senior. " If the climate of England could be sud- 
denly changed to that of Bogota, and the warmth which we 
extract imperfectly and expensively from fuel were supplied by 
the sun, fuel would cease to be useful, except as one of the 
productive instruments employed by art; [that is, in metal- 



THE NATURE OF EXCHANGEABLE VALUE. 39 

lurgy, driving steam-engines, &c.] We should want no more 
grates or chimney-pieces in om* sitting-rooms. What had pre- 
viously been a considerable amount of property in the fixtures 
of houses, in stock in trade, and materials, would become val- 
ueless. Coals would sink in price ; the most expensive mines 
would be abandoned ; those which were retained would afford 
smaller rents. The proprietors and tradesmen specially affect- 
ed by the change would lose, not only in wealth, but in the 
means of enjoyment. The owner of a mine whose rent fell 
from £ 20,000 a year to <£ 10,000 would not be compensated 
by being saved the expense of fuel in every room except his 
kitchen. On the other hand, persons without fire-places or 
coal-cellars of their own would lose nothing, and the rest of the 
world would lose only in the value of their grates, chimney- 
pieces, and stocks of coal ; and all would gain in enjoyment 
by being able to devote to other purposes the money which 
they previously paid for artificial warmth. StiU, for a time, 
there would be less [artificial] wealth; [and there would be 
permanently a great gain in natural wealth.] The capital 
and the labor previously devoted to warming our apartments, 
would be diverted to the production of new commodities. 
The cheapness of coal would increase the supply of manufac- 
tured articles, and there would then be as much wealth as 
there was before the change; probably more, and certainly 
much more enjoyment." 

As to the nature of the labor which ends in the production 
of wealth, it is justly remarked by McCulloch, that " all the 
operations of nature and art are reducible to, and reaUy con- 
sist of, transmutations, that is, of changes of form and of place. 
By production, in this science, is not meant the production of 
matter, that being the exclusive attribute of Omnipotence, but 
the production of utility, and consequently of value, by appro- 
priating and modifying matter already in existence, so as to 
fit it to satisfy our wants, and contribute to our enjoyments. 
The labor which is thus employed is the only source of wealth. 
Nature spontaneously furnishes the matter of which all com- 
modities are made ; but until labor has been applied to appro- 
priate that matter, or to adapt it to our use, it is wholly desti- 
tute of value, and is not, nor ever has been, considered as 
forming wealth. Place us on the banks of a river, or in an 



40 



THE PRODUCTION OF WEALTH. 



orchard, and we shall infallibly perish of thirst or hunger, if we 
do not, by an effort of industry, raise the water to our lips, or 
pluck the fruit from its parent tree. It is seldom, however, 
that the mere appropriation of matter is sufficient. In the vast 
majority of cases, labor is required not only to appropriate it, 
but also to convey it from place to place, and to give it that 
peculiar shape without which it may be totally useless, and in- 
capable of ministering either to our necessities or our comforts. 
The coal used as fuel is buried deep in the bowels of the earth, 
and is absolutely worthless until the miner has extracted it 
from the mine, and brought it into a situation where it may be 
made use of. The stones and mortar used in building houses, 
and the rugged and shapeless materials that have been fash- 
ioned into the various articles of convenience and ornament 
with which they are furnished, were, in their original state, 
destitute alike of value and utility. And of the innumerable 
variety of animal, vegetable, and mineral products, which form 
the materials of food and clothes, none was originally service- 
able, while many were extremely noxious to man. It is his 
labor which has given them utility, that has subdued their bad 
qualities, and made them satisfy his wants and minister to his 
comforts and enjoyments." 

We distinguish, then, three kinds of industry: — 

1. The labor of collecting' and appropriating natm-al products. 
This includes the work not only of the agriculturist, or tiller of 
the ground, but of the miner, the huntsman, the fisherman, 
and all others who bring together for the use of man the vari- 
ous products of sea and land which satisfy his wants. 

2. The tasks of the manufacturer, the mechanic, and the ar- 
tisan, who shape, combine, and fabricate raw materials into 
forms fit for use. 

3. The business of the merchant, who brings together the 
products of various climes, distributes them among the people 
in proportion to their means and wants, and equalizes the sup- 
plies and prices of commodities by storing them up for future 
use, or carrying them where they are most needed. 

Again, the commodities which constitute wealth may be di- 
vided into two classes: — 1. The articles which are designed 
for immediate consumption, and which directly satisfy the 
wants of man, such as food and clothing, that are fit to be 



THE MEASURE OF VALUE. 41 

eaten and worn, the houses that shelter us, and the ornaments 
and luxuries that gratify our tastes. 2. The tools, implements, 
and raw materials, by means of which, or out of which, the 
former articles are made, but which, in their present shape, are 
not fitted for our immediate gratification or support. These 
last possess only a kind of secondary or derivative value, as 
they are prized, not for their own sake, but for what can be 
made out of them, or obtained by their aid. 



CHAPTER IV 



THE MEASURE OF VALUE, AND THE DISTRIBUTION OF WEALTH 
^wV AMONG THE COOPERATING PRODUCERS OF IT. 

Thus far it has been shown, that labor is not only necessary 
in fact for the creation of value, but enters into the very idea 
of it, so that, when the necessity for labor departs, the reality 
and even the conception of value vanish along with it. I now 
say that the labor required is a measure of the value produced. 
But here the word labor must be taken in its most comprehen- 
sive signification. I mean by it ani/ human exertion whatever, 
corporeal or intellectual, which directly or indirectly overcomes 
or diminishes that difficulty of attainment which we have seen to 
he an essential element of wealth. The only measure of such 
labor is its comparative efficiency. Thus, the labor of one 
practised and skilful artisan is equal to that of at least three 
raw hands, or ordinary laborers, as they are termed ; in some 
cases, it may equal that of many more. The labor, chiefly in- 
tellectual, of general superintendence and skilful direction of 
the operatives employed in a manufactory, may be measured 
by the ordinary labor which it saves, — that is, by the number 
of additional workmen, or the additional time, that would be 
needed if such superintendence were wanting ; or it may be 
measured by the scarcity of the peculiar skill and tact which 
are required for such superintendence, — that is, by the diffi- 
culty of finding a competent superintendent. 



42 THE MEASURE OF VALUE : 

So the value of a machine may be either the labor which it 
saves, or the labor which it costs. If, for instance, a manufac- 
turer introduces a new machine, by the aid of which two men 
can do the work that formerly required ten men, (two more 
persons being required to build the machine and keep it in re- 
pair,) he will save the labor of six persons ; and the value of 
this machine to him will be represented by six laborers work- 
ing gratuitously. This will be the case, however, only so long 
as he can keep the machine a secret from other manufacturers, 
or enjoy the exclusive use of it. When its use becomes gen- 
eral, the general saving of labor, reducing the cost of the man- 
ufactured article, will also reduce its price ; for that which 
costs the labor of but four persons will exchange for the labor 
of not more than four. No one will give anything more for 
any commodity than it would cost him to produce it for him- 
self ; and in the case supposed, any four workmen, by employ- 
ing such a machine, might manufacture the article for them- 
selves. Now, then, the value of the machine will be only the 
labor which it costs ; the articles produced by it will represent 
the labor of but four persons, — two to work it, and two more 
to build and keep it in repair. 

The general law, therefore, that the labor required is a 
measure of the value produced, is subject to two limitations : — 
the first is, that allowance must be made for the various de- 
grees of efficiency of the several laborers employed ; the sec- 
ond, that the maker has not the advantage of a patented 
machine or a secret process, which might enable him to pro- 
duce the commodity by a smaller expenditure of labor than is 
usual. According to Adam Smith, a workman accustomed 
to the use of the hammer, but not accustomed to making nails, 
cannot manufacture usually more than 300 nails in a day ; while 
such is the dexterity acquired by practice, that about 2,300 can 
be made in a day by a workman who has never exercised any 
other trade than that of making nails. The value of one day's 
labor of such a workman, in this manufacture, will be evident- 
ly equal to that of seven or eight days' labor by an ordinary 
smith. It is equally obvious, that the exclusive use of a ma- 
chine, or a secret process, might render the articles produced by 
three ordinary workmen the fuU equivalent in value of those 
manufactured by thirty or forty hands working without any 
such advantage. 



THE DISTRIBUTION OF WEALTH. 43 

When the use of machinery has diminished the exchange- 
able value of certain commodities, the question may be asked. 
What has become of the difference between their former and 
their present cost ? The difficulty of obtaining these commod- 
ities is diminished, the labor required to overcome that diffi- 
culty is consequently lessened, and therefore, according to the 
principles already laid down, less exchangeable value is cre- 
ated. Suppose cloth to be the commodity manufactured, and 
that the price was formerly ten cents a yard, while it can now 
be had for four cents. All of that cloth which is already in the 
market will now be held at only two fifths of its former value. 
What has become of the other three fifths ? Is this amount 
of exchangeable value destroyed, and is the introduction of la- 
bor-saving machinery, therefore, an evil to the community ? 

The answer is, in this case as in the former one, that the ex- 
changeable value of the commodity is diminished ; but what 
is taken away from that value is added to what I have called 
the natural wealth of the people, in distinction from their arti- 
ficial w^ealth, — to the stock of those things, like the air and 
the sunHght, which are of preeminent utility, but, being uni- 
versal and inexhaustible, cannot be exchanged for anything. 
That this is true may be seen at once by putting the extreme 
case. Imagine that the machine, instead of saving only three 
fifths of the labor, should save the whole of it. Imagine that 
some contrivance should be hit upon for producing cloth in un- 
bounded profusion, no labor of man being required in any part 
of the process. It is obvious that we should then obtain cloth 
on the same easy terms on which we now obtain air and light. 
It would be an addition to the natural wealth of mankind ; 
but as any person could have as much of it as he wished with- 
out difficulty, he would not give in exchange for it anything 
which had cost him labor ; it would have no exchangeable value. 
And as a machine which would save the whole of the labor 
would transform the whole exchangeable value into natural 
wealth, so, if it saved but three fifths of the labor, it would add 
that three fifths to our natural wealth. 

Observe, however, as before, that this result would follow 
only if the use of the machine became common. If its inventor 
or first introducer could keep it to himself for a time, he could 
exchange the cloth which cost him the labor of only four men 



44 THE MEASURE OF VALUE : 

for articles which cost others, and would cost him, the labor of 
ten men ; because it would take ten persons, without the aid 
of the machine, to produce the cloth. The value produced is 
measured by the average of the labor required for making or 
obtaining the commodity, and not by the greater or smaller 
amount of labor which circumstances may render necessary in 
a particular case. K any person has a monopoly granted by 
the government, or a secret process, or a machine which others 
cannot imitate, he can turn to his own exclusive advantage the 
value which would otherwise be added to the natural wealth 
of the community. 

Accident, or good fortune, as it is called, may have the same 
effect as a monopoly or a secret process. Take the pearl-fish- 
ery, for instance. The value of the pearls obtained wiU be de- 
termined by dividing the whole amount procured in one day 
by the whole number of divers employed during that day ; and 
by dividing the quantity obtained in the whole season by the 
number of days in that season ; — thus ascertaining the aver- 
age cost of the pearls in labor. But the business is a mere lot- 
tery ; one diver may bring up, from his first plunge, a pearl 
worth a hundred doUars ; another may dive for a week, and 
obtain little or nothing. K a capitalist should undertake the 
business, and pay fixed wages to all the divers on condition of 
receiving all the pearls which they found, his profits, or the 
value of the pearls, will evidently be determined by their aver- 
age cost in labor, and not by individual and extraordinary 
cases. When ]VIr. Senior, who denies that labor is essential 
to the creation of wealth, asks triumphantly, " K, while care- 
lessly lounging along the sea-shore, I were to pick up a pearl, 
would it have no value ? " and, " Supposing that aeroHtes con- 
sisted of gold, would they have no value ? " he might be an- 
swered, that accidents and miraculous events are supposed to 
be eliminated when we are reasoning upon the general princi- 
ples which govern ordinary events; and that, if pearls were 
common enough to be often found by loungers on the sea- 
shore, or if showers of golden aerohtes were so frequent as no 
longer to appear miraculous, certainly both the pearls and the 
gold Avould have little or no value. 

I have dwelt at length upon the tsvo fundamental maxims 
of Political Economy, that labor is the source of wealth, and 



THE DISTRIBUTION OF WEALTH. 45 

that the wealth produced is in exact proportion to the labor 
expended, and is therefore measured by it, because, obvious 
and unquestionable as these truths may appear, they are yet 
such as the world is slow to recognize and reluctant to act 
upon. Here in America especially, too many people spend 
their time and waste their substance upon vain projects for 
getting rich without labor. They hope that some one of those 
accidents, or peculiar circumstances, which we have noticed 
as occasionally disturbing the regular proportion of value to 
labor, may fall to their lot ; that is, — for it amounts to noth- 
ing else, — that they may become rich at the expense of their 
feUo^vs ; that they may, by some invention, or perhaps some 
roguery, be able to exchange four days' labor for ten days' la- 
bor. They will take shares in a copper-mine, or go to Califor- 
nia to dig gold, or commit any other extravagance, though it 
should be demonstrated to them that the average return, the 
whole profit divided by the whole number of adventurers, 
would not keep one from starvation. 

Take another instance. Three persons out of four, when 
the temptation is brought home to them, will buy a ticket in 
a lottery ; though this is the only adventure ever offered to the 
public, in which, avowedly, the net result is not a gain, but a 
loss. For $ 120,000 received as the price of tickets, perhaps 
$ 100,000 are returned in prizes ; that is, the adventurers ex- 
pect that only five sixths of what they have invested will be 
returned to them, instead of getting back the whole and a 
profit besides. And the 1 100,000 returned are divided into so 
few prizes, that nineteen out of twenty of the ticket-holders 
must suffer a total loss of their investment. But one fortunate 
person — one out of 60,000 — must receive $ 20,000 for two 
invested. And yet lotteries are so popular, that they must be 
forbidden by law, in order to prevent clerks from robbing their 
employers for the sake of investing money in them ; and the 
most effectual way of encouraging the fine arts in this country 
is found to be the establishment of an Art- Union lottery for 
their benefit. Sydney Smith, a veteran opponent of abuses in 
church and state, and one whose wit was not more remark- 
able than his sagacity and benevolence, strenuously opposed a 
scheme for reducing the monstrous inequalities in the compen- 
sation of the English clergy, on the ground that these inequal- 



46 THE MEASURE OF VALUE : 

ities allured more talent into the Church than would be 
brought thither by a much larger income equally distributed. 
Men, he argued, think only of the prizes, and take no account 
of the blanks. The chance of becoming an Archbishop of 
Canterbury, with <£ 20,000 a year, is enough to allure over 
10,000 clergymen into an Establishment one half of the livings 
in which produce less than & 100 of annual income.* 

Coming back to the subject of the cooperation and the com- 
pensation of labor, it may be remarked, that the seemingly 
complex and difficult process of dividing the ultimate value of 
the finished article equitably among all those who have had a 
share in its production, is really accompHshed with ease, 
through the number of exchanges it undergoes at the difTerent 
stages of its manufacture. At each stage, labor effects a 
change in its form, bringing it nearer to the state in which it 
is fitted for consumption ; at each exchange, therefore, it has 
more labor vested in it, and consequently buys more labor 
vested in other products, the difference being the compensation 
of the last person who has made an alteration of its form. 
What regulates this difference, and causes each producer to 
be paid in exact proportion to the labor which he has be- 
stowed, is the competition of other producers. Wheat, for 
instance, is first sold or exchanged as wheat, the price paid for 
it being the compensation of the farmer by whose care and la- 



* First Letter to Archdeacon Singleton. 

This argument, however, was not original with Sydney Smith. It was urged, 
more than a hundred years before his day, by the famous Dr. Bentley, the Aristar- 
chus of English literature, in his "Remarks" upon Collins's " Discourse on Free- 
Thinking." I borrow the passage, which is written in the character of a foreigner, 
Phileleulherus Lipsiensis. 

" I congratulated, indeed, the felicity of your Establishment, which attracted the 
choice youth of your nation for such very low pay ; but my wonder was at the par- 
ents, who generally have interest, maintenance, and wealth the first thing in their 
view : till at last one of your state lotteries ceased my astonishment. For as in that, 
a few glittering prizx'S, 1,000, 5,000, 10,000 pounds, among an infinity of blanks, 
drew troops of adventurers, who, if the whole fund had been equally ticketed, would 
never have come in ; so a few shining dignities in your Church, prebends, dean- 
eries, bishoprics, arc the pious fraud that induces and decoys the parents to risk their 
child's fortune in it. Every one hopes his own will get some great prize in the 
Church, and never reflects on the thousands of blanks in poor country livings. And 
if a foreigner may tell you his mind, from what he sees at home, 't is this part of 
your Establishment that makes your clergy excel ours. Do but once level your pre- 
ferments, and you 'II soon be as level in your learning." 



THE DISTRIBUTION OF WEALTH. 47 

bor it was raised. As labor is the measure of value, a quantity 
of wheat which represents five days' labor must be exchange- 
able for a quantity of cloth which also represents five days' 
labor, — no more and no less ; — no more, because this would 
induce the cloth-maker to turn farmer; no less, because the 
farmer would then turn cloth-maker. No man will give six 
days' labor in any one product for another product which he 
might himself raise in five days. And though it may be said, 
that he who has long practised a particular trade or art will 
be reluctant to exchange it for another, as he would thereby 
sacrifice the skill which he has obtained by experience, and be 
obliged to serve another apprenticeship to a new handicraft or 
profession, it must be remembered, that all employments can 
be kept full only by a succession of young and fresh hands 
constantly entering them, and these persons wiU choose, of 
course, the occupation that is most profitable. Thus the num- 
ber of those who pursue the art which is underpaid wiU rap- 
idly diminish, while the number in the more profitable branches 
of industi-y wiU increase, until an equality of gains among all 
these branches is reestablished. Exchanges then regulate 
themselves, and must be made on equal terms. The farmer 
having received a fair compensation for his work, the miller 
next obtains the wheat, and, having converted it into flour, seUs 
it to the flour-merchant at an advanced price, because more 
labor is now vested in it. In like manner, it passes succes- 
sively into the hands of the retail dealer, the baker, and the 
consumer, at each stage acquiring an additional value in ex- 
change just sufficient to compensate, on an average, the labor 
expended upon it at that stage. 

Competition, then, when it is free, or competition modified 
by custom, determines the distribution of the value of a prod- 
uct among those who have concurred in its production. How 
far it may be modified by custom depends on circumstances. 
Mr. MiU justly observes, that competition has become "the 
governing principle of contracts only at a comparatively modern 
period " ; and that " the relations, more especially, between the 
land-owner and the cultivator, and the payments made by the 
latter to the former, are, in all stages of society but the most 
modern, determined by the usage of the country." It was thus 
that, in many European countries, the serfs were gradually el- 



48 



THE MEASURE OF VALUE I 



evated, first into the condition of free tenants, and finally of 
absolute owners of the soil. Their original obligation, to fur- 
nish to their lords an indefinite amount of provisions and la- 
bor, was first transformed into a definite payment of a fixed 
amount of either; these payments in kind were next com- 
muted for payments in money, which were established by 
custom at so early a period, and therefore at so small an 
amount, that they became mere quitrents ; and the land was 
finally ransomed even from these quitrents by commutation 
on reasonable terms, so that the former serfs became absolute 
proprietors of the ground. 

While the peasantry in most countries of Continental Eu- 
rope were thus not only emancipated, but secured from want 
by the ownersliip of the ground which they formerly tilled as 
slaves, the agricultural laborers of England were far less fortu- 
nate. AU landed property in England was equally of feudal 
origin ; that is, the land was admitted to belong originally to 
the state, and the immediate vassals of the- crown, or the ten- 
ants in capite, held it only on condition of rendering certain 
services and payments, that might be considered as rent. Just 
so, the practice of sub-infeudation being introduced, these vas- 
sals of the crown parcelled out their respective lands to a set 
of inferior tenants, many of whom were originally serfs, on 
condition, first, of certain services and suppHes being rendered, 
next, of a definite payment in kind, and then, of an ordinary 
money rent. Thus the inferior tenantry were the vassals of 
the great landholder, in the same manner, and upon the same 
terms, upon which the latter was a vassal of the crown, both 
being still caUed tenants in the language of the law. As the 
prerogatives of the crown were gradually diminished, and the 
liberties of the people increased, the nobility and landed gen- 
try, the original tenants in chief, gradually lessened the feudal 
burdens upon then* land, which consisted in services and pay- 
ments, and finally, in Charles the Second's time, shook off the 
remnant of them altogether, artfuUy exchanging what had be- 
come a mere land-tax for an excise on beer and ale. Thus 
they became absolute owners of their holdings or tenements. 
But they had no disposition to make the same concessions to 
their own tenantry, which they had themselves exacted from 
the crown. The English peasantry have not been able to re- 



THE DISTRIBUTION OF WEALTH. 49 

tain their lands, even on condition of paying the full original 
rent for them. They have subsided into the class of tenants at 
ivill, ground down by rack-rents for a century or two, and at 
last- expelled from the land altogether, to find their subsistence 
where they may. The feudal dues from the lands of the ten- 
ants in chief were slowly transformed into a species of land-tax, 
and at last abrogated entirely ; while the same dues from the 
lands of the inferior tenantry were transformed into annual 
rents, augmented in amount by every improvement of the land 
in value, and when the peasants^ from misfortune or bad man- 
agement, could no longer pay them, they were ejected from 
the estate altogether, and became mere laborers for wages, or 
paupers. 

The Scotch Highlanders have suffered still more grievous 
injustice. The Gaelic tenant was never conquered; he did 
not obtain his land from the liberality of his lord, but was 
originally a fellow-proprietor with him, or rather with his clan. 
The chief whom he followed to battle regarded him at first as 
his friend and relation, then as his soldier, afterward as his 
vassal, still later as his farmer, and finally as his tenant and 
hired laborer, whom he might employ for a time, but might 
banish from the estate when he had no further need of his ser- 
vices. Even the name of the clansmen, Klaan, in Gaelic sig- 
nifies children. All their usages, all their reciprocal relations, 
all their affections, were founded on the tradition that they 
were the offspring of one family ; aU their rights were those of 
the children of a common parent to the common patrimony. 
The chieftain exercised, perhaps he usurped, the right of divid- 
ing the land among them, and even of frequently altering this 
distribution. It was a matter of public policy with the Celts, 
as well as with the Germans, that families should frequently, 
even annually, change their position in the district which be- 
longed to them, lest they should become too much attached 
to the fields which they cultivated, and thus be unfitted for 
war, and averse to undertaking military expeditions. But 
though their locations were altered, the vacated places were 
occupied by other members of the same clan, and the chief- 
tain could not alienate any portion of the common property. 
The tenure of the lands remained the same ; the assessment 
for the public defence, the annual contribution for the chief- 
5 



50 



THE MEASURE OF VALUE 



tain who ruled them and led them to battle, were never aug- 
mented. 

The first step in the usurpation was to grant the tacks^ or 
portions of land, to the vassals for a fixed period of time. 
This appeared to be a concession, as formerly the occupants 
could be changed at will ; but in truth it was a usurpation, for 
now, instead of filling the vacated places with other clansmen 
on precisely the same conditions, the lands came to be consid- 
ered as farms, and at each renewal of the lease new terms 
might be imposed, and a higher rent demanded. Thus the 
Highland lords, who were rightfully entitled only to an invari- 
able rent levied on the property of the clan, obtained at last 
an absolute ownership of the domain which paid this rent. 
Still they were far from believing that the time would come 
when they would take advantage of the renewal of the leases, 
not merely to raise the rent, but to expel their vassals fi:om the 
estate. But the period arrived for this change also to be ef- - 
fected. " Since the beginning of the present century," says 
Sismondi, "the nation of the Highlanders or Gauls, the de- 
scendants of the ancient Celts, now reduced to 340,000 souls, 
has been almost entirely expelled from its home by the very 
persons whom it regarded as its chieftains, and to whom it 
had shown for so many centuries an enthusiastic devotion. 
The territory which they had cultivated from generation to 
generation, under a fixed rent, has been taken from them and 
devoted to the pastm-age of flocks guarded by herdsmen who 
are strangers ; their houses and villages have been razed to 
the ground or destroyed by fire, while the unhappy people 
have been forced, either to build cabins on the sea-shore, and 
endeavor to maintain their miserable existence by fishing, or 
to cross the ocean to seek their fortune in the back-settlements 
of America." " It is only within the last five-and-thirty years," 
says IVIr. Thornton, writing in 1845, "that the straths and 
glens of Sutherland have been cleared of their inhabitants, and 
that the whole country has been converted into one immense 
sheepwalk, over which the traveller may proceed for forty miles 
together without seeing a tree or a stone wall, or anything 
but a heath dotted with sheep and lambs." And the example 
of Sutherland has been imitated in the neighboring counties. 
The effect of custom in modifying competition has also been 



THE DISTRIBUTION OF WEALTH. 51 

seen in Ireland, where the custom of what is called tenant- 
right has sprung up, prevailing almost universally in the north, 
and gradually extending itself into the centre and west of that 
unhappy country. " My view of tenant-right," says Mr. Sen- 
ior, "is, that it is the difference between the rent actually 
charged by the landlord according to the custom of the coun- 
try, and the utmost competition value." In some cases, it is 
said to be founded on improvements made by the tenant on 
his farm, the beneficial effects of which are not exhausted, so 
that the outgoing tenant claims a right to sell them. The 
landlords, most of whom are absentees, and therefore unable 
to watch and know the changes which time produces on the 
annual value of their estates, have so long received an unvary- 
ing sum as the rent of each farm, and each farm has remained 
so long in the possession of one tenant, that the customary 
rent is now considered as all which the landlord is entitled to 
receive; and whatever the land is really worth beyond this 
sum accrues to the benefit of the tenant. If this tenant wishes 
to quit the holding, custom gives him the right to sell what 
we should call " the good-will of the farm " for his own bene- 
fit ; that is, the incoming tenant pays his predecessor a hand- 
some bonus for the privilege of taking the farm on the old, 
fixed rent, which is now much below the annual value of the 
ground. An enterprising landlord sometimes buys up this 
"right" for himself, in order that he may once again enter 
into full possession of his property. 

Custom is here seen modifying the full effect of competition 
on the price of land, because the farm is not actually let to 
the highest bidder ; and it often has equal influence on the 
prices of other commodities. Among the publishers of books, 
for example, the courtesy of the trade, as it is termed, often 
restrains one house from issuing a rival edition of a work lui- 
protected by copyright before the edition published by another, 
who first risked the enterprise, is exhausted. So, also, as Mr. 
Mm remarks, " all professional remuneration is regulated by 
custom. The fees of physicians, surgeons, and barristers, the 
charges of attorneys, are nearly invariable. Not certainly for 
want of abundant competition in those professions ; but be- 
cause the competition operates by diminishing each competi- 
tor's chance of fees, not by lowering the fees themselves." 



52 THE MEASURE OF VALUE : 

But competition is the general rule ; and the effect of unre- 
strained competition is to distribute the value of a product 
equally among its various producers, leaving neither to any of 
them, nor to the consumer, any just ground of complaint. 
Each receives in exact proportion to the labor which he has 
bestowed; the labor of all was equally necessary to present 
the article in its finished state ; and he who finally consumes 
it, therefore, justly pays all by rendering an equivalent amount 
of labor. I place stress upon this point, because the effect of 
sharp competition is, in some measure, to blind our eyes to 
the fact, that we are aU indebted to the friendly cooperation of 
labor for all the necessaries, all the comforts, all the luxuries, 
which we enjoy. This cooperation and mutual dependence of 
all the arts and trades, all the branches of industry, all ranks 
and professions, is one of the most valuable lessons of Political 
Economy ; and the fair rivalry which causes the distribution of 
values among them, in proportion to their respective industry 
and skill, ought not to create feelings of mutual jealousy and 
dislike, — ought not to give rise to the cry, that one class is 
taldng more than its due share of the common product. It is 
impossible that any class, as a class, should be unduly favored. 
Individual cases there may be, where fortune, or singularly 
propitious circumstances, may swell one's gains beyond the 
common standard. But as a general rule, competition, if un- 
fettered, must tend to reduce them to an equality. The man- 
ufacturer is no more dependent upon the agriculturist, than 
the agriculturist is upon the manufacturer ; " the plough," says 
Adam Smith, " goes frequently the easier and the better by 
means of the labor of the man whose business is the most re- 
mote from the plough." The merchant is equally dependent 
upon both, and both depend equally upon him. Even the 
common laborer is as much indebted to his employer as his 
employer is to him, each rendering a peculiar service, without 
which the finished product could not be placed in the market 
or exchanged for other products. 

The prejudice which prevents this truth from being gener- 
ally recognized is the very natural one, which considers the 
value of the finished product to reside chiefly in the raw ma- 
terial, and, when that is bulky and cheap, to believe that the 
great enhancement of its price, which takes place as it passes 



THE DISTRIBUTION OF WEALTH. 53 

through the hands of the manufacturer and merchant, is a 
needless and arbitrary thing, an injury both to the farmer and 
the consumer. But it is not so ; in either case, a modification 
of the article is effected, and the difficulty which the consumer 
finds in obtaining it in a form fit for use is lessened ; and it is 
easy to show, that all the modifications which it successively 
undergoes conduce to that end. We cannot consume or use 
raw cotton, corn in the husk, or unground wheat. The trans- 
formations effected by art are just as necessary preliminaries 
to use, and therefore produce wealth, just as much as the trans- 
formations effected by natm-e. Agriculture is but one branch 
of what has been happily termed " appropriative industry," or 
that which is applied merely to collecting and appropriating 
the articles which nature spontaneously supplies. It includes, 
together with agriculture, as we have said, the operations of 
mining, fishing, hunting, and collecting the wood and other 
products of the forest. 

" The industry which prepares," says Colonel Torrens, " is, 
necessarily, in the order of time, secondary to that which ap- 
propriates the gifts of nature. But though man must originally 
have lived by merely availing himself of nature's spontaneous 
gifts, yet the very first, or, at most, the very second step to- 
wards knowledge and improvement, must have led him to the 
attempt of superadding to these gifts some rude species of 
preparation. Almost the whole of the productions of nature 
are presented to us in a new or rude state, and, if it were not 
for the application of labor to the preparing and forming of 
them, would be absolutely without utility. Without manu- 
facturing or adaptive industry, therefore, our wealth would be 
necessarily limited to that scanty supply of necessaries which 
nature presents in a state fit for immediate consumption. 
Man would be reduced to a more destitute and helpless state 
than that in which he has ever yet been found, even in the 
most barbarous and savage countries. He would possess no 
species of clothing whatever ; his only shelter from the rigors 
of the climate would be the hollows of trees and the caverns 
of the earth ; and his only food would be fruits, roots, and the 
flesh of such of the smaller animals as he might, in his naked 
and helpless state, be able to outrun and overcome. Indeed, 
with respect to the supply of his wants, he would be placed 
5* 



54 THE MEASURE OF VALUE. 

far below the condition of the inferior animals ; for these are 
clothed by the hand of nature, and are furnished with imple- 
ments of admirable construction for the performance of every 
function necessary for their well-being. 

" Again, without the cooperation of manufacturing industry, 
no other branch of industry can be effectually carried on. To 
fell the forest, to pierce the mine, and to traverse the waters, 
we must have the aid of appropriate implements and ma- 
chines ; and these can be supplied only by the manufacturer. 
This application of the instruments of production not only 
gives utility to articles which could not otherwise possess it, 
but also furnishes us with the power of appropriating useful 
materials, which, without its cooperation, would be for ever in- 
accessible." 

Commerce, moreover, as a soui'ce of wealth, is equally pro- 
ductive with manufacturing and appropriative industry. The 
most precious fruits of the earth cease to constitute wealth 
when there is a superabundance of them, and when they no 
longer find wants to satisfy. Commerce comes to restore util- 
ity to them, to replace them among articles of wealth, by 
transporting them to places where they are wanted. Of what 
avail is it for me to know, that there is tea enough in China, 
and coffee enough in the West Indies ; that there is cotton to 
spare in Carolina, and a surplus of wheat in Ohio, if some 
kind person will not intervene to bring these articles to my 
doors, and offer to me the precise quantity of each which I 
need, in exchange for other articles of which I may have a su- 
perabundance. To accomplish this transportation and distri- 
bution, each individual being accommodated with what he 
wants, as much as he wants, and where he wants, a large ap- 
paratus of means is necessary. Ships must be built and 
appointed, warehouses must be stocked, correspondence must 
be arranged, and the supplies must be nicely adapted to the 
wants and means of each locality which is to be provided for. 
The problem abcady mentioned, that of supplying a large city 
with all its necessaries and comforts, must be solved in every 
part, in all its complex details. Commerce is what renders 
possible that vast division of labor to which the industry of 
civilized man owes nearly all its superior efficiency over that 
of the savage. He who devotes a lifetime to the manufacture 



THE DIVISION OP LABOR. 55 

of one small article — needles, for instance — must accumu- 
late an immense store of them ; and the quantity needed by 
any one family is so small, that, if he would find purchasers for 
his whole stock, without the help of professed traders, he must 
give two thirds of his time to seeking purchasers of what he 
manufactures in the other third. The merchant takes up his 
whole stock at once, giving him its full value in whatever he 
most needs in return. It is a mere truism to say, that who- 
ever converts an idle and superfluous thing into a highly useful 
one, creates wealth. The merchant does this, by maldng one 
man's, or one country's, superfluity supply another's wants ; 
he does it by exchanging superfluities, and thus equalizing the 
bounties of Providence. By his instrumentahty, the hard and 
rugged soil of Massachusetts, with its long winter, yields to its 
industrious cultivator all the fruits of the tropics, all the pro- 
ductions of the most favored climes. The merchant equalizes 
the gifts of nature in another manner, — by transportation in 
time as well as in space. The surplus from an unusually 
abundant harvest he stores up in reserve against the possible 
deficiency of the next season. He gives the alarm, when there 
is the slightest reason to fear that the next crop may be a fail- 
ure, by raising the price of the stock already on hand, and thus 
renders the people economical in its consumption. Through 
all these methods his agency in the production of wealth is so 
important, that he richly earns the portion of it which falls to 
his lot in the general distribution of values. 



CHAPTER V. 

THE DIVISION OF LABOR: ITS BENEFICIAL AND INJURIOUS CON- 
SEQUENCES. 

The analysis of the nature of value, and of the distribution 
of wealth among its producers, has already brought us to the 
conclusion, that the cooperation of many laborers with each 
other is one great cause of the efficiency or productiveness of 



56 THE DIVISION OF LABOR. 

labor. Labor is divided in two ways ; — first, by allotting dif- 
ferent portions of a process to different hands, all cooperating 
with each other in the production of one article ; as when 
eighteen workmen are employed in one pin manufactory, each 
devoting himself exclusively to one of the eighteen distinct op- 
erations into which the making of a pin is divided. The sec- 
ond kind of division takes place by the separation of employ- 
ments, the several sets of laborers being employed at different 
times and places, and in distinct pursuits, so that their coop- 
eration with each other, though real, is not so obvious as in the 
former case. These two modes of the division of labor, says 
Mr. Wakefield, " may be termed Simple Cooperation and 
Complex Cooperation." They tend equally to render labor 
more efficient. 

Thus, the manufacturer is just as dependent on the miner, 
the agriculturist, and the trader, as the workman who makes 
the head of a pin is on him who cuts the wire and him who 
sharpens it. The services of all are needed, before all the com- 
munity can obtain the article in its finished state ; and there- 
fore the ultimate and highest value of that article, the price of 
it when ready for consumption, is to be divided among aU who 
have concurred in its production, each receiving in proportion 
to the labor he has bestowed. When is it "ready for con- 
sumption " ? Not surely as soon as it has received the last 
touch of skill in the workshop, but only when it is offered to 
the person who wishes to use it, — offered, as it were, at his 
own door, in just the quantity that he desires, and in exchange 
for the only article which he is able to give for it. Here the 
intervention of the trader is needed ; a peculiar task is to be 
performed, which can be done to advantage only by one who 
devotes himself to it altogether, without comphcating it with 
other employments. The wholesale dealer takes off the man- 
ufacturer's whole stock, sparing him the labor of finding nu- 
merous purchasers of particular quantities ; the retailers divide 
this stock, and circulate it tln:ough the length and breadth of 
the land, offering to each small villager just as little as he 
needs, and receiving in exchange, (sometimes tlu'ough the in- 
tervention of money, and sometimes by direct barter,) what- 
ever product the villager has to offer. The importance of the 
service thus rendered appears from the large portion of the ulti- 



THE DIVISION OF LABOR. 57 

mate value of the finished product which falls to their share ; 
the profits of retailers in this country average fi:om 10 to 20 
per cent., or from one tenth to one fifth part of the values sold. 
And while competition is free, it is certain, for the reasons al- 
ready explained, that this is only a fair compensation for their 
services ; if it were not so, miners, manufacturers, and even 
common workmen, would turn retailers, and undersell them. 

I borrow another illustration from Mr. Mill. " In the pres- 
ent state of society, the breeding and feeding of sheep is the 
occupation of one set of people, dressing the wool to prepare 
it for the spinner is that of another, spinning it into thread of 
a third, weaving the thread into broadcloth of a fourth, dyeing 
the cloth of a fifth, making it into a coat of a sixth, without 
counting the multitude of carriers, merchants, factors, and re- 
tailers put in requisition at the successive stages of this pro- 
cess. All these persons, without knowledge of one another or 
previous understanding, cooperate in the production of the ulti- 
mate result, a coat. But these are far fi:om being all who co- 
operate in it ; for each of these persons requires food and many 
other articles of consumption ; and unless he could have relied 
that other people would produce these for him, he could not 
have devoted his whole time to one step in the succession of 
operations which produce one single commodity, a coat. Ev- 
ery person who took part in producing food or erecting houses 
for this series of producers has, however unconsciously on his 
part, combined his labor with theirs. It is by a real though 
unexpressed concert, ' that the body who raise more food than 
they want, can exchange with the body who raise more clothes 
than they want ; and if the two bodies were separated, either 
by distance or disinclination, — unless the two bodies should 
virtually form themselves into one, for the common object of 
raising enough food and clothes for the whole, — they could not 
divide into two distinct parts the whole operation of producing 
a sufficient quantity of food and clothes.' " 

The advantages of Simple Cooperation, which was formerly 
regarded as the only kind of Division of Labor, have been ad- 
mh-ably illustrated by Adam Smith. Passing over, as it is so 
well known, his illustration from pin-making, I adopt an ex- 
ample of the effects produced by the division of labor that is 
given by M. Say, in a passage translated by Mr. ]\Iill. It is 



58 THE DIVISION OF LABOR. 

taken from a very humble branch of industry, the manufacture 
of playing-cards. " It is said by those engaged in the busi- 
ness, that each card, before being ready for sale, undergoes no 
less than seventy operations, every one of which might be the 
occupation of a distinct class of workmen. And if there are 
not seventy classes of work-people in each card-manufactory, 
it is because the division of labor is not carried so far as it 
might be ; because the same workman is charged with two, 
three, or four distinct operations. The influence of this distri- 
bution of employments is immense. I have seen a card-man- 
ufactory where thirty workmen produced daily 15,500 cards, 
being about 500 cards for each laborer ; and it may be pre- 
sumed that, if each of these workmen were obliged to perform 
all the operations himself, even supposing him a practised hand, 
he would not perhaps complete two cards in a day ; and the 
thii-ty workmen, instead of 15,500 cards, would make only 60." 

The business of watch-making in England is said by Mr. 
Babbage to have been divided into 102 distinct branches, to 
each of which a boy may be put apprentice, and taught to 
practise it exclusively, without learning to work at any other 
branch. " The watch-finisher, whose business it is to put to- 
gether the scattered parts, is the only one, out of 102 persons, 
who can work at any other department than his own." 

The prodigious increase in the efficiency of labor caused by 
division of the task is attributed by Adam Smith to three 
causes. 

1. The increased dexterity, corporeal and intellectual, ac- 
quired by frequent repetition of one simple operation. The 
laborer thus acquires a sleight of hand, enabUng him to perform 
his task with a rapidity wJiich, to those who have had no expe- 
rience in the work, appears truly marvellous. A chUd who 
fastens on the heads of pins \vill repeat an operation requiring 
several distinct motions of the muscles one hundred times a 
minute, for several successive hours. Gymnastic exercises, 
many feats of jugglery, and the ease and brilliancy of execu- 
tion acquired by experienced performers on musical instru- 
ments, are other cases, as remarkable as they are famihar, of 
the rapidity and facility acquired by repetition. The same is 
true of operations exclusively mental ; a practised accountant 
sums up a column of figures with a quickness that resembles 
intuition. 



THE DIVISION OF LABOR. 59 

2. The saving of the time which is commonly lost in pass- 
ing from one species of work to another, and in the change of 
place, position, and tools. Thus, says Smith, " a country 
weaver who cultivates a smaU farm must lose a good deal of 
time in passing from his loom to the field, and from the field 
to his loom. When the two trades can be carried on in the 
same workhouse, the loss of time is, no doubt, much less. 
Even in this case, however, it is very considerable. A man 
commonly saunters a little in tm-ning his hand from one em- 
ployment to another." " When the human hand, or the hu- 
man head," adds Mr. Babbage, " has been for some time 
occupied in any kind of work, it cannot instantly change its 
employment with full effect. The muscles of the limbs em- 
ployed have acquired a flexibility during their exertion, and 
those not in action a stiffness during rest, which renders every 
change slow and unequal in the commencement. Long habit 
also produces in the muscles exercised a capacity for enduring 
fatigue to a much greater degree than they could support un- 
der other circumstances." So, also, in the use of tools, time 
is lost in shifting from one to another ; and when many imple- 
ments are required for the different occupations, at least three 
fom'ths of them must be constantly idle and useless. 

3. The invention of a great number of machines, which fa- 
cilitate and abridge labor in all its departments. The division 
of labor reduces a complex operation to many simple tasks, 
each of which is incessantly repeated ; and this is precisely 
what machines may be made most easily to perform. The 
whole of a workman's attention, moreover, being directed to 
one simple object, easier and readier methods of obtaining that 
object are more likely to occur to him, than when his thoughts 
are dissipated among a variety of things. I have heard that 
most of the improvements in machinery, which have been 
made of late years in the manufactories at Lowell, were first 
suggested by the common workmen who were engaged in 
tending the machines. In the first steam-engine, says Adam 
Smith, " a boy was constantly employed to open and shut al- 
ternately the communication between the boiler and the cylin- 
der, according as the piston either ascended or descended. 
One of those boys, who loved to play with his companions, 
observed that, by tying a string from the handle of the valve 



60 



THE DIVISION OF LABOR. 



which opened the communication to another part of the ma- 
chine, the valve would open and shut without liis assistance, 
and leave him at hberty." Thus one of the most important 
steps in the improvement of steam-engines was made by an 
idle boy. 

4. Another advantage derived from the division of labor was 
first pointed out by Mr. Babbage ; — the more economical dis- 
tribution of labor, by classing the work-people according to 
their capacity. " Different parts of the same series of opera- 
tions require unequal degrees of skill and bodily strength ; and 
those who have skill enough for the most difficult, or strength 
enough for the hardest, parts of the labor, are made much more 
useful by being employed solely in them ; the operations which 
everybody is capable of, being left to those who are fit for no 
others." Thus, in a cotton manufactory, men, women, and 
children are employed on different portions of the work, and, 
of course, at very different rates of wages. Obviously there 
would be a great waste, if men were employed to perform tasks 
which children might do as well, or if fingers which were deli- 
cate enough for hem-stitching and embroidery, were devoted to 
raising heavy weights or swinging sledge-hammers. In needle- 
making, Mr. Babbage teUs us, the scale of remuneration for 
different parts of the process, performed by different work-peo- 
ple, varies from sixpence to twenty shillings a day. 

5. One of the principal advantages of the division of labor, 
says Ml*. Senior, " arises from the circumstance that the same 
exertions which are necessary to produce a single given result 
are often sufficient to produce many hundred or many thou- 
sand similar results. The Post-Office supplies a familiar illus- 
tration. The same exertions which are necessary to send a 
single letter from Falmouth to New York are sufficient to for- 
ward fifty, and nearly the same exertions will forward ten 
thousand. If every man were to effect the transmission of his 
own correspondence, the whole life of an eminent merchant 
might be passed in traveUing, without his being able to deliver 
aU the letters which the Post-Office forwards for him in a 
single evening. The labor of a few individuals, devoted exclu- 
sively to the forwarding of letters, produces results which all 
the exertions of aU the inhabitants of Em*ope could not effect, 
each person acting independently." 



THE DIVISION OF LABOR. 61 

The extent of the division of labor must always be limited 
by the extent of the market. Ten workmen can make 48,000 
pins in a day ; but they cannot do so to advantage, unless 
there is a daily consumption of pins to that amount. If there 
be a daily demand for no more than 24,000 pins, they must 
either lose half the day's work, or change their occupation, — 
that is, lessen the division of labor by engaging in two sepa- 
rate tasks. Hence, the division of labor cannot be carried to 
its farthest limit except in the case of products capable of dis- 
tant transport, and the consequent increase of consumption ; or 
where the manufactm-e is carried on amidst a dense popula- 
tion, creating an extensive local demand. Where the popula- 
tion is limited, many trades, elsewhere distinct, are practised 
by the same individual. In a small village, the same person is 
surgeon, doctor, and apothecary ; while, in a large city, there is 
separate employment for each of these practitioners, and even 
for subdivisions of their profession into the several occupations 
of dentists, oculists, accouchem's, &c. The village grocer deals 
not only in groceries, but in dry goods, crockery, hardware, 
books, and stationery ; and if a Yankee, he may also edit, 
print, and publish a newspaper, keep a school, and go to Con- 
gress. In large cities, the sale of a single article of grocery 
may form a large and lucrative business ; in Boston and New 
York, there are shops where nothing is sold but tea. All im- 
provements in the modes of transportation, as by roads, canals, 
and railways, obviously promote the division of labor, by 
widening the market which each locality can command for its 
special products. 

" The division of labor is also limited, in many cases," says 
Mr. Mill, " by the nature of the employment. Agricultm*e, for 
example, is not susceptible of so great a division of occupa- 
tions as many branches of manufactures, because its different 
occupations cannot possibly be simultaneous. One man can- 
not be always ploughing, another sowing, and another reaping. 
A workman who only practised one agricultural operation 
would be idle eleven months of the year. The same person 
may perform them aU in succession, and have, in almost every 
climate, a considerable amount of unoccupied time. The 
combination of labor of which agricultural industry is suscep- 
tible is chiefly that which Mr. Wakefield calls Simple Cooper- 
6 



62 THE DIVISION OF LABOR. 

ation ; many persons employed together in the same work. 
To execute a great agricultural improvement, it is often neces- 
sary that many laborers should work together ; but in general, 
except the few whose business is superintendence, they all 
work in the same manner. A canal or a railway embankment 
cannot be made without a combination of many laborers ; but 
they are all excavators, except the engineer and a few clerks." 

The advantages of the division of labor, however, we must 
admit, are subject to one serious drawback. Few things tend 
so effectually to dwarf the mind and stunt the faculties as the 
incessant and long-continued repetition of a very simple task, 
— a mechanical movement which is repeated with as little ef- 
fort of thought as if it were performed by a machine. Even 
Adam Smith remarks, that constant application to such a task 
" necessarily renders the workmen as stupid and ignorant as it 
is possible to make a human being." And Say adds, that " a 
man whose whole life is devoted to the execution of a single 
operation, will most assm'edly acquire the faculty of executing 
it better and quicker than others ; but he will, at the same 
time, be rendered less fit for every other occupation, bodily and 
intellectual ; his other faculties will be gradually blunted and 
extinguished, and the man, as an individual, will degenerate 
in consequence. To have never done anything but make the 
eighteenth part of a pin, is a sorry account for a human 
being to give of his existence." The division even of intel- 
lectual labor, however it may tend to excellence and insure 
success in a single department, is not without a similar perni- 
cious result. The successful pursuit of a single art, or of the 
fraction of a single science, is but poor compensation for the 
loss of all versatility and alertness of mind, and for allowing 
most of the faculties to rust by disuse. One may become a 
good accountant, an expert mathematician, and even a skilful 
lawyer, without being anything more than the fraction of a 
man. 



THE NATURE OF CAPITAL. 63 



CHAPTER VI. 

THE NATURE OF CAPITAL, AND THE MEANS OF ITS INCREASE. 

Another circumstance on which the efficiency of labor 
largely depends is the cooperation of capital, or stock. All 
capital is wealth, but all wealth is not capital. The furniture 
of a rich man's house, for instance, — his carpets, his plate, his 
paintings, and much even of the food which is daily placed 
upon his table, — forms a portion of his wealth, but not of his 
capital. All these articles contribute to his enjoyment, perhaps 
some of them are necessary for his sustenance ; but they do 
not directly aid him in the creation of other values. As they 
are consumed, or slowly worn out, they create nothing to re- 
place them, and leave behind them nothing but the remembrance 
of the gratification which they have afforded. They are the fruit 
of previous industry indeed, having been created, as all other 
values are, by labor : but with the exception of the little food 
which is necessary to support life, they do not sustain present 
labor, do not aid in the production of fresh values. Capital is 
that portion of wealth which is consumed, not for purposes of 
mere enjoyment, not for immediate gratification, but to aid in the 
production of more wealth. It is still consumed, with greater 
or less rapidity ; but its value disappears in one shape only to 
reappear in another. The necessity for the employment of 
capital arises from the fact, that man cannot labor to any good 
purpose with his hands alone. He must have tools, imple- 
ments, machinery, raw material ; if the article on which he is 
engaged requires time for its manufacture, he must be fed, 
clothed, and lodged while he is occupied in manufacturing it. 
The aggregate of wealth existing in these various forms, de- 
signed either to aid the laborer in his work, or to support him 
while working, is capital. It is consumed, but its value ap- 
pears again in the larger amount of wealth which industry 
produces when thus assisted. The tools and machinery wear 
out ; but the products which they have aided in creating en- 
able the capitalist to replace them with a profit. Raw cotton 



64 



THE NATURE OF CAPITAL. 



is consumed in large quantities, and reappears as cloth ; the 
seed-corn is buried in the earth, but in a few months, the har- 
vest yields twenty or thirty fold. 

Labor is limited by capital, because labor cannot be prose- 
cuted to any advantage without capital. Yet this fact does 
not contradict our general proposition, that wealth is created 
by labor alone ; for capital itself is created by labor, and might 
be called consolidated or invested labor. But although labor is 
thus limited, it is by no means proportioned to the amount of 
capital employed. A master-shoemaker, with a capital of not 
more than $ 5,000, may keep twenty journeymen and appren- 
tices in constant employment ; while a manufacturer of gold 
and silver plate, or a wholesale merchant, with a capital of 
half a million of dollars, may not pay wages to more than 
thirty or forty persons. McCulloch observes, that " a manu- 
facturer's power to employ labor is not measured by the total 
amount of his capital, but by the amount of that portion only 
which is circulating- capital. A capitalist possessed of a hun- 
dred steam-engines, and of £ 50,000 of circulating capital, has 
no greater demand for labor, and does not, in fact, employ a 
single workman more, than the capitalist who has no ma- 
chinery, and only £ 50,000 devoted exclusively to the payment 
of wages." Boots and shoes, for instance, are at present man- 
ufactured without machinery, and with the aid only of a few 
cheap tools. With a lapstone, a hammer, a 4cnife, and an awl, 
the journeyman can begin work ; and even the raw material 
which he needs is so frequently " turned over," as the phrase 
goes, or so quickly converted jfrom leather into merchantable 
boots and shoes, that, if the articles can be sold as soon as they 
are manufactured, a few dollars will keep him constantly sup- 
plied with sufficient stock. On the other hand, an immense 
capital must be vested in machinery, before the business of 
weaving cotton or woollen cloth on a great scale can begin. 

Even in the rudest states of society, among savage nations, 
capital exists, though in small quantities, and performs its ap- 
propriate functions. " The wretched native of New Holland," 
says Colonel Torrens, " has his spear, his fishing implements, 
and his canoe, for the purpose of abridging his labor, — of per- 
forming operations of which he would otherwise be incapable, 
and appropriating productions of nature which, but for the aid 



THE NATURE OF CAPITAL. 65 

of these rude instruments, would for ever have remained be- 
yond his reach." Before he labors directly to capture the wild 
tenants of the forests and the rivers, he labors to prepare him- 
self for the task by manufacturing the necessary implements ; 
consequently, the exchangeable value of the articles which he 
finally obtains is measured by the quantity of labor, both di- 
rect and indirect, which was devoted to their production. No 
one will give labor of either sort for nothing. That which was 
bestowed on the manufacture of bows and arrows must be 
compensated just as much, and in the same ratio, as that 
which was given to the pursuit and kilHng of wild animals ; 
otherwise, no one will make bows and arrows. The law of 
distribution, therefore, that the value of the completed product 
wiU be divided among its producers in exact proportion to the 
labor bestowed by each, is not altered by the cooperation of 
capital with labor. The profits of capital are the reward of 
labor just as much as the wages directly paid to the laborer. 

Capital exists, as I have said, among savages ; and it accu- 
mulates very rapidly with the progress of civilization. So 
rapid, indeed, is its increase, and so vast becomes its aggre- 
gation, that it constitutes the chief difference in point of effi- 
ciency between the labor of the savage and that of civilized 
man. The Australian or the Indian may be as muscular as 
the European ; he often works as hard, and is even more ca- 
pable of enduring hardship and privation. He also practises 
the division of labor to some extent, as a whole tribe often 
unite in the chase or in war, and make larger captm*es by act- 
ing in concert and parcelling out the work among each other. 
But their labor on the whole is miserably inefficient and un- 
productive, because it is aided only by a triffing amount of 
capital. " Ten men, abundantly supplied with capital, and 
skilful in the use of it, would be able to appropriate a greater 
quantity of fish, and of useful mineral productions, than could 
be appropriated by ten thousand, whose only instrument of 
production was the labor of their hands." 

The savage does not amass capital, because he is incapable 
of foresight and self-denial. What he obtains is devoted to 
the gratification of the present moment, or is wasted. This, 
in truth, is the chief reason why he does not tiU the ground ; 
he often has knowledge enough for this end, his powers of ob- 
6* 



66 THE NATURE OF CAPITAL. 

servation being largely developed. He notices slight peculiar- 
ities of vegetation, which escape the eye of the white man ; 
and by this means, is often enabled to find his way through the 
trackless forests. He knows that edible fruits and grains are 
produced from seed. But he is not economical and prudent 
enough to reserve seed-corn for agriculture, or to lay in a store 
of food which will enable him to expend labor on the ground, 
to dig and plant, with the expectation of reaping the fruits of 
his labor only after an interval of some months. He is obhged 
to give all his toil to the necessities of the present hour, be- 
cause he is not prudent enough to save, and not industrious 
enough to work when there is no immediate necessity for 
working. Though the common opinion runs the other way, 
I beUeve that man has no natural instinct for saving, no origi- 
nal propensity for labor ; — none, at least, that is not constant- 
ly overridden by other and stronger propensities. The hardest 
lesson for children and savages to learn is that of economy, — 
the necessity of bridling the inclination or appetite of the mo- 
ment, with a view to some prospective benefit. Long and 
hard experience has taught this lesson to the full-grown and 
reflecting man, and taught it so effectually, that, as is often the 
case, the acquired incUnation overrides the original impulses, 
and aU other passions are merged, not merely in the love of 
accumulation, but in that of saving. We not infrequently 
hear of misers who will give away thousands, whUe they are 
depriving themselves almost of the necessaries of Hfe for the 
sake of saving units. Exertion is naturally pleasant, it is true ; 
yet only when directed by the caprice of the moment, as in 
sport ; not the long-continued and monotonous exertion which 
is necessary for the attainment of a future good. That always 
requires self-restraint, a contest with and a victory over our 
original inclinations. 

This view of the difference between the barbarian and the 
civilized man leads directly to a knowledge of the origin of 
capital and the means of its increase. It begins in saving, and 
is enlarged only by the continued exercise of frugality. Labor 
creates wealth, the object of which is, as we have seen, the 
gratification of desire ; and the portion of wealth which is 
saved from the gratification of our immediate wants, and re- 
served to aid our future labor, so that the future product may 



THE NATURE OF CAPITAL. 67 

be greater, is capital. The inducement to the practice of such 
frugality is always strong enough in a civilized community ; 
for the ability to save increases in a geometrical ratio with its 
exercise. C^est le premier pas qui coute. The hardest strug- 
gle, the severest exercise of self-denial, is to make the begin- 
ning, to spare a little from our daily comforts when as yet we 
are entirely dependent upon the fruits of our unaided labor. 
Afterwards, that little which was reserved works along with 
us, and the surplus is greater at the end of the second year, 
though we have practised no additional self-restraint* Soon, 
the aggregate of these savings produces more than our original, 
individual earnings, and our expenditures may come up again 
to the full measure of what they would have been if no fru- 
gality had been practised at the outset ; and yet accumulation 
goes on as rapidly as if we had been able to reserve the whole 
original product of our labor, and subsist upon nothing. The 
industrial organization of society is now so perfect, that the 
smallest savings can be utihzed, or devoted immediately to 
active employment as capital. This rapid progress of accumu- 
lation, operating like the constantly accelerating force of grav- 
itation, supplies the strong motive for frugality, which operates 
like a charm in the swift growth of national opulence. 

It is now easy to explain the difference, on which so much 
stress is laid, between productive and unproductive consump- 
tion. Take the case, referred to in a former chapter, of a la- 
borer who has saved $ 100 from his yearly earnings. At the 
end of the year, having this sum in reserve, he may immedi- 
ately expend it all in giving an entertainment to his friends, or 
purchasing finer clothes and furniture for his family. In 
neither case would the values thus consumed aid either his 
labor or that of any other being ; in the first case, it would be 
consumed all at once, the wine being drunk, the music heard, 
the delicacies eaten, and there would be an end of his savings ; 
in the other case, the enjoyment would only be spread over a 
little longer time ; the clothes and furniture, in the course of a 
few months or years, would be worn out, and the $ 100 would 
then have equally disappeared without return. Such is what 
is termed unproductive consumption. 

But let us suppose, as before, that at the end of the year he 
placed the money in a savings' bank, or bought a machine 



68 



THE NATURE OF CAPITAL. 



■with it, by the aid of which his labor would produce half as 
much again as in the former t\velvemonth. In the bank, as 
has been shown, it would successively and rapidly assume dif- 
ferent forms, at each transformation aiding labor or setting it 
in motion, at each yielding a profit, and leaving a final profit 
for the benefit of him who deposited it. This share of profit 
accruing to the owner is comparatively small, because he has 
committed the management of his property, and the risk of 
losing it, to others, and they must be paid for the labor and 
hazard of its superintendence. If he chooses to use it himself, 
as in the case supposed of purchasing a machine with it, his 
yearly earnings will be much increased, and the surplus will be 
enough to keep the machine in repair, to buy another when 
the first one is worn out, and to leave a larger profit at the end 
of the year, which surplus, again, he may spend productively 
or unproductively. 

In all the cases now enumerated, it is evident that the labor- 
er's surplus earnings are consumed. In the first two cases, be- 
ing consumed only to obtain present enjoyment, whether of a 
longer or shorter duration, they never appear again ; in the last 
two, being consumed only for the purpose of aiding labor, they 
reappear in the increased product of that labor. And so it 
must be in every supposable case, except where the savings 
are obtained in the form of gold or silver money, and are 
buried in the earth ; then, indeed, they are not consumed, be- 
cause they are not used at all, either for present gratification 
or future gain. 

We see the fallacy, then, of the common opinion, that the 
prodigals who waste their substance in riotous or ostentatious 
living, though they and their families afterwards suffer for it, 
are yet benefactors to the community, because their liberal ex- 
penditm-es keep laborers in employ, increase the profits of shop 
keepers, and diffuse benefits all around them. He who saves, 
on the contrary, appears in the fight of one who hoards ; sav- 
ing seems but another word for keeping a thing to one's self, 
while spending appears to be distiibuting it among others. 

This popular error arises chiefly from the fact, that the 
wasteful person consumes his income and his capital mostly 
on the spot where he resides, where the public eye can follow 
his wealth, and see it passing into the hands of laborers, 



THE NATURE OF CAPITAL. 69 

tradesmen, and dependents. But these persons do not obtain 
it for nothing. They give services, goods, articles of luxury, in 
exchange ; and when these services are rendered, and the arti- 
cles consumed, there is an end of the prodigal's wealth. He 
has nothing left, and they are but little richer than before, 
having only made their ordinary gains, or received their accus- 
tomed wages. The community, then, is the poorer by the 
whole amount which the prodigal has squandered. The sav- 
ings of the frugal person, on the other hand, are often with- 
drawn from sight of the immediate neighborhood, being quietly 
invested in a bank or manufactory, where they are consumed 
productively ; that is, they are stiU applied to the purchase of 
labor or goods, and so equally keep industry in motion, though 
this beneficial result is not easily traced back, and ascribed to 
the proper author of it. 

To make this point clearer, I will take a particular example. 
Suppose a prodigal maintains an establishment of ten menial 
servants, at an expense of | 3,000 a year. At the end of the 
year, he has expended this portion of his capital, and the ser- 
vants have received their usual wages ; but as they have toiled 
only to pamper his deske of enjoyment, and to gratify his love 
of ostentation, no products of their labor remain at the end of 
the year, and they are no better off than they would have been 
if they had obtained equal wages for making boots and shoes, 
or laboring on a farm. Then suppose a frugal person, having 
an equal sum of $ 3,000 a year to spend, instead of hiring me- 
nial servants with it, should invest it in the shoemaking busi- 
ness or in agriculture. It is obvious that an equal number of 
persons might thus be employed, and at the same wages ; at 
the end of the year, moreover, instead of nothing being left, 
there would be an additional stock of one or two thousand 
pairs of boots and shoes, or of four or five thousand bushels of 
corn. The capital of the frugal person and the riches of the 
community would thus be augmented to the extent perhaps of 
$ 4,000 (ordinary allowance being made for profits) ; and this 
would be a fund for the support of industry for an indefinite 
period, or until it came into the hands of a prodigal who 
should waste it in luxuries and self-indulgence. 

Adam Smith happily illustrates this subject, by comparing 
the frugal person to the founder of a pubhc charity, in that he 



70 THE NATURE OF CAPITAL. 

establishes, as it were, a perpetual fund for the purpose of sup- 
plying indigent laborers with employment at good wages for 
all time to come. But the prodigal is like him " who perverts 
the revenues of some pious foundation to profane purposes, as 
he pays the wages of idleness with those funds which the fru- 
gality of his forefathers had, as it were, consecrated to the 
maintenance of industry." 

It should be observed, that the only fund from which savings 
can be made, and capital thereby increased, is the annual in- 
come or revenue of the individual. If the manufactm-er, for 
instance, at the end of the year, has merely got his capital back 
again, the values created exactly replacing those which were 
consumed, though he has preserved his property, he has effect- 
ed no saving ; he is neither richer nor poorer than he was be- 
fore. His capital ought to be replaced ivith a profit; and the 
aggregate of the profits for a year, not the aggregate of all the 
values produced during that time, constitutes his income or 
revenue. This income, like the year's wages of a laborer, 
seems to be the fund naturally designed for his own mainte- 
nance and that of his family. A portion of it mtist be spent in 
this manner, — that is, must be spent unproductively ; for 
health and strength must be kept up by food, drink, and 
clothing; in addition to which, in order to keep up the full 
vigor of mind and body, a small portion of every one's income 
ought to be devoted to amusement and a few luxuries. But 
if these personal expenditures, and the replacement of the cap- 
ital consumed during the year, do not absorb the whole in- 
come, what remains is a true saving, an addition to capital, a 
benefit both to the individual and the community. 

" It would be a great error," says ]Mr. MiU, " to regret the 
large proportion of the annual produce, wliich, in an opulent 
country, goes to supply unproductive consmnption. It would 
be to lament that the community has so much to spare from 
its necessities, for its pleasures and for all higher uses. This 
portion of the produce is the fund fi-om which aU the wants of 
the community, other than that of mere living, are provided 
for ; the measure of its means of enjoyment, and of its power 
of accomplishing all purposes not productive. That so great 
a surplus should be available for such purposes, and that it 
should be apphed to them, is a subject only of congratulation. 



THE NATURE OF CAPITAL. ?! 

The things to be regretted and to be remedied are the prodi- 
gious inequality with which this surplus is distributed, and the 
large share which falls to the lot of persons who render no 
equivalent service in return." 

The wealth which is employed in creating more wealth has 
been divided by Adam Smith into Fixed and Circulating Cap- 
ital. " There are two ways," he says, " in which a capital may 
be employed so as to yield a revenue or profit. 

" First, it may be employed in raising, manufacturing, or 
purchasing goods, and selling them again with a profit. The 
capital employed in this manner yields no revenue or profit to 
its employer, while it either remains in his possession or con- 
tinues in the same shape. The goods of the merchant yield 
him no revenue or profit till he sells them for money, and the 
money yields him as little tiU it is again exchanged for goods. 
His capital is continually going from him in one shape, and 
retm-ning to him in another ; and it is only by means of such 
circulation, or successive exchanges, that it can yield him any 
profit. Such capitals, therefore, may properly be called circvr 
laUng capitals. 

" Secondly, it may be employed in the improvement of land, 
in the purchase of useful machines and implements of trade, 
or in such like things as yield a revenue or profit without 
changing masters or circulating any further. Such capitals, 
therefore, may properly be called fixed capitals." 

This distinction has been further illustrated by the remark, 
that Circulating Capital fulfils the whole of its office in pro- 
duction by a single Use ; while Fixed Capital produces its ef- 
fect, not by being parted with, but by being kept, and its 
efficacy is not exhausted by a single use. Observe, also, that 
the same articles may be Circulating Capital while in the 
hands of one person, and become Fixed Capital as soon as 
they are transferred to another. A stock of finished ploughs, 
for instance, belongs to the former class while they are owned 
by the manufacturer or the merchant, who expects not to use, 
but to sell them, and can obtain his profit only from the pro- 
ceeds of such a sale ; but they become Fixed Capital when 
they are purchased by the farmers, who expect to retain* and 
use them till they are worn out. 

Fixed Capital, Adam Smith remarks, "consists chiefly of 
the four following articles : — 



72 THE NATURE OF CAPITAL. 

" First, of all useful machines and implements of trade 
which facilitate and abridge labor. 

" Secondly, of all buildings used for the purpose of trade or 
manufacture, such as shops, warehouses, and farm buildings. 
They are a sort of instruments of trade, and may be consid- 
ered in the same light. 

" Thirdly, of the improvements of land, of what has been 
profitably laid out in clearing, draining, inclosing, manuring, 
and reducing it into the condition most proper for culture. 
An improved farm may be regarded in the same light as one 
of those useful machines which facilitate and abridge labor. 

" Fourthly, of the acquired and useful abilities of all the 
members of the society. The acquisition of such talents by 
the maintenance of the acquirer during his education, study, 
or apprenticesliip, costs an expense, which is a capital fixed 
and realized, as it were, in his person. The improved dexter- 
ity of a workman may be considered in the same light as a 
machine or instrument of trade, which facilitates and abridges 
labor. 

" The Circulating Capital is composed likewise of four 
parts : — 

" First, of the money by means of which all the other three 
are circulated and distributed to their proper consumers. 

" Secondly, of the stock of provisions in the possession of 
the butcher, the grazier, &c. for the purpose of sale. 

" Thirdly, of the materials, whether altogether rude, or more 
or less manufactm-ed, of clothes, furniture, and building, which 
are not yet made up, but remain in the hands of the growers, 
manufacturers, or merchants. 

" Fourthly, of the work which is made up and completed, but 
is still in the hands of the merchant or manufacturer ; such as 
the finished work in the shops of the smith, the goldsmith, the 
jeweller, and the China merchant. The Circulating Capital 
consists in this manner of the provisions, materials, and fin- 
ished work of all kinds, which are in the hands of their respect- 
ive dealers, and of the money that is necessary for circulating 
and distributing them to their final consumers." 

To this enumeration by Adam Smith must be added two 
classes of articles, which seem to have been excluded by him 
for insufficient reasons ; namely, food and the other necessaries 



HOW CAPITAL IS INCREASED. 73 

of life, and dwelling-houses. The name of capital has been 
denied to these two classes of things, because they are con- 
sumed as revenue, with a view to subsistence or enjoyment, 
and not as capital, with a view to production. But it may be 
replied, that the laborer, before he can construct or fashion 
anything, must not only have raw materials and tools, but 
must be secure of a lodging and a dinner. An expenditure 
for all four of these objects is necessary before he can complete 
his task ; and the aggregate of such expenditure is therefore 
properly considered as an advance of capital, the means for 
this advance having been previously obtained by abstinence or 
j&ugality. 



CHAPTER VII. 

THE CIRCUMSTANCES WHICH FAVOR THE GROWTH OP CAPITAL: 
THE SECURITY OF PROPERTY. 

The circumstances on which the rapidity of accumulation, 
or the growth of capital, depends, are various, and the study 
of them is one of the most interesting researches in which the 
economist or the historian can engage. Laws and political 
institutions generally have a vast influence in this respect, as 
weU as differences of national character and peculiarities of 
geographical position. The results of the former may be 
traced, by the light both of theory and history, often in quar- 
ters where they would be the least suspected, the most promi- 
nent and marked effect being frequently attributable to the 
noiseless working, through many generations, of peculiar cus- 
toms and laws, which do not attract much notice precisely be- 
cause they are ingrained or deeply seated. Foremost among 
these sUent but potent causes, which escape the attention of 
the superficial observer, must be ranked the legislative and con- 
suetudinary provisions which regulate the succession to the 
estates of persons deceased. I believe the striking differences 
in the social and economical condition of the English and the 
American people, who are of the same blood, who speak the 
7 



74 HOW CAPITAL IS INCREASED. 

same language, who have many similar traits of national char- 
acter, and whose political institutions in the main are very 
much alike, are more attributable to their different modes of 
regulating the succession to property, than to any other single 
cause whatsoever. But this subject will be more conveniently 
considered hereafter. 

Om- general question is, When is labor most energetic, uni- 
versal, and effective in the creation of wealth, and by what 
means are the motives to accumulation from savings most 
strongly stimulated ? I cannot atti'ibute much importance in 
this respect to what are called the natural advantages of a 
country, — its genial climate, fertile soU, large expanse of ter- 
ritory, or happy geographical position. These natural advan- 
tages, as they are termed, have fearful drawbacks in the indo- 
lence and sense of secmity which they foster, and the luxmious 
habits to which the people Avho possess them incline, their 
chief luxury always being repose. Some of the countries of 
South America are as highly favored in these respects as any 
part of the habitable globe ; but it is not to this portion of our 
continent that we look for instances of the most rapid gi-o\\i^h 
of national wealth. " In the ancient world and in the ]\Iiddle 
Ages," it has been well remarked, " the most prosperous com- 
munities were not those which had the largest territory or the 
most fertile soil, but rather those wliich had been forced by 
natural sterihty to make the utmost possible use of a conven- 
ient maritime situation; as Tyi'e, Marseilles, Venice, the free 
cities on the Baltic, and the like." And that we may not 
over-estimate even this convenience of position, it should be 
remembered that Athens, Tp'e, and Venice stand just where 
they did, though then- commercial glory has long since passed 
away. The geographical position of Greece, with its long 
line of deeply indented sea-coast on a tideless sea, is precisely 
what it was when Greece almost monopolized the commerce 
and the arts of the INIediterranean, She is now the most in- 
significant kingdom in Em-ope, and with difficulty supports 
an ignorant and thinly scattered population. 

But we need not go abroad for illustrations of this truth. 
At home, — here in Massachusetts, — W' here we are indebted 
to the rigor of our climate and the hardness of our soil for our 
only natural exports, capital has increased, and is increasing, as 



HOW CAPITAL IS INCREASED. 75 

fast as in any portion of the United States, — faster probably 
than in Louisiana, with its rich staples of cotton and sugar, 
and its unequalled position at the outlet into the great Gulf 
of five thousand miles of internal navigation, — as fast as in 
Pennsylvania, with its inexhaustible stores of mineral wealth, 
and its soil so fertile that one county might produce more 
wheat than the whole Bay State. Natural wealth enervates 
both body and mind. Where an abundance can be had with 
little labor, much labor will never be practised. What seems 
a paradise on earth, the nearest natural semblance of a Gar- 
den of Eden, may be found in the isles of the South Pacific, 
or in the West Indies, where a race of white colonists seem to 
be fast becoming as feeble and brutish as were the natives 
whom they dispossessed. Here again, as in so many other in- 
stances, we are reminded that the essential quality of wealth, 
properly so called, is difficulty of attainment, — difficulty that 
can be overcome only by long and strenuous exertion. 

The principal causes of the rapid growth of national opu- 
lence are moral rather than physical ; a situation which shall 
make foreign commerce at least practicable, seems to be the 
only indispensable condition that is not connected with the 
character of the people. By moral causes alone can we hope 
to solve that interesting and difficult problem, the decline and 
fall of the opulence and grandeur of Spain. Hardly two cen- 
turies ago, Spain was what Great Britain is now, the richest, 
noblest, and most powerful kingdom in Europe, on whose do- 
minions the sun never set, and whose people, distinguished 
alike in arts and arms, carried their flag and their renown to 
either pole, and encircled the earth with the golden chains of 
their commerce. Now, language seems hardly adequate to 
describe their poverty and abasement, and the wretched condi- 
tion of Spain. I do not speak merely of the decline of hei 
military strength and political influence among the nations of 
Europe. This is an effect, rather than a cause, of the great 
change which has taken place in the economical condition of 
her people, — of the decay of her commerce, the loss of her 
manufactures, the wretched state of her agriculture, and the 
gradual wasting away of her population. And her decline 
cannot be attributed to the loss of her American colonies ; 
since it became marked at least a century before the first of 



76 



HOW CAPITAL IS INCREASED. 



these colonies threw off her yoke ; and since apparently the 
same causes which have enfeebled the mother country, have 
prevented all progress among her emancipated children in the 
Western world. In Mexico, Bohvia, and Peru, as well as from 
the foot of the Pyrenees to Cadiz, the right arm of industry 
seems to be paralyzed, and what remains of energy, courage, 
and intelhgence among the people is wasted in dissensions 
and civil broils, instead of being devoted to the golden pur- 
suits of peace. The physical circumstances in the two cases 
are as unlike as possible ; yet, in point of natural advantages, 
it would be difficult to say which is the more favored. A 
fairer field for the development of labor and enterprise can 
hardly be imagined, than that which exists on the high table- 
lands of Mexico and among the romantic vaUeys of Spain. 
Improved by English or Anglo-American hands, under Eng- 
lish or Anglo-American institutions, they would become store- 
houses of wealth for future generations. 

To return to our general question : — The moral causes 
which most effectually stimulate labor and frugality, and there- 
by make capital accumulate most rapidly, are those which se- 
cure to the laborer with the greatest certainty the fruit of his 
industry ; which raise the kind or degree of labor to the high- 
est practicable point ; and which offer the highest reward, the 
largest measure of social advantages, to the holder of capital, 
— apportioning that reward strictly to the comparative amount 
which he holds, and making it most immediate and attractive. 
There are three points, then, which may be more fully stated 
thus : — 

1. That the laborer shall be sure of receiving the full amount 
of his wages, or shall be protected in the ownership of the 
values which he has produced. 

2. That the skill, intelligence, and education of the laboring 
classes generally shall be raised to the highest point, — so that, 
the labor of one well-trained mechanic being as effective at 
least as that of three raw hands or mere laborers, the working 
class shall contain as many as possible of the former, and as 
few as possible of the latter description. 

3. That the savings when made, or the capital when accu- 
mulated, shall be attended with as high a rate of profit, and as 
large a measure of physical comfort, social consideration, and 
political influence as possible. 



THE SECURITY OF PROPERTY. 77 

The illustrations which may be offered upon these three 
points are enough, I think, to prove that they are vastly more 
important than any measure of natural advantages, including 
even that on which most stress has been laid, — the inherited 
qualities of race, or the national, inbred inclination to labor and 
enterprise. I am no great believer in the natural excellences 
of Anglo-Saxon blood, but I have great faith in the acquired 
excellences of Anglo-Saxon institutions. My reason for dis- 
trust in the former case is, that time was, and that not many 
years ago, when the Dutch certainly, if not the Swiss, were 
decidedly superior to the English in industry, frugality, and 
the spirit of commercial adventure. In this last respect, even 
the Spaniards and the Portuguese were ahead of their English 
competitors. And here in America, where our population is 
a conglomerate of all the races of the earth, the first generation 
born on American soil, be its parents English, Irish, Dutch, 
French, or Spaniards, is sure to show the characteristic Amer- 
ican trait, — a disposition to toil, to dare, and to save. Re- 
sults so general can be accounted for only by some peculiarity 
in the air that we breathe, or in the institutions that we live 
under. And as the researches of chemists have proved that 
our atmosphere contains about the usual proportion of oxygen 
and nitrogen, I am inclined to refer this peculiarity altogether 
to our "institutions" ; — understanding, however, this term in 
its widest sense ; making it comprehend not merely our repub- 
lican polity, our national and State organizations, but our re- 
publican habits, feelings, and tendencies, — our disposition to 
manage our own affairs in our own town-meetings, and there 
to allot the greatest trust to him who is distinguished above 
all others by this very American trait, this disposition to toil, 
to dare, and to save, be his race or parentage what it may. 

First, then, security in the receipt and enjoyment of the fruits 
of labor is not merely the great stimulus, but the indispensable 
prerequisite, to general industry and frugality. " Security " 
means not only the absence of war, tyranny, intestine commo- 
tions, and all other causes of spoliation, interference, and un- 
due control, but the absence of all dread, of aU probability, or 
possibility, of such unhappy contingencies. Labor and enter- 
prise are elastic, and will quickly recover from the effects of 
any sudden or unexpected misfortune, however great, if the 

ry * 



78 HOW CAPITAL IS INCREASED. 

workmen or adventiirers think they have a reasonable protec- 
tion against its recurrence. If the calamity is such that the 
country is not actually depopulated by it, the next harvest will 
make up the temporary scarcity of food, and less than a year's 
labor will replace the customary stock of manufactiu'cd com- 
modities; for the circulating capital of the manufacturer is 
usually " turned over," as the phrase goes, or consumed and 
reproduced, oftener than once in a year ; and if his fixed capi- 
tal, his machines, buildings, and other improvements, require a 
little longer time for their imhic to be restored, (the potent in- 
fluence of credit causing them to be actually rebuilt in a very 
short period,) it is still matter of certain calculation, that a few 
years will make up the loss. But if a dread should hang over 
the people, lest a similar catastrophe should soon recur, few 
would labor at all, and those few would put but little heart 
into their work ; since few are willing to produce what others 
are to consume. The general feeling would be like that which 
prevails on shipboard, after all hope of saving the vessel is lost : 
" let us eat and drink, for to-morrow we die." 

Security has been well defined by Mr. INIill as "the com- 
pleteness of the protection which society affords to its mem- 
bers. This consists of protection hy the government, and 
ag-oinst the government. The latter is the more important. 
Where a person known to possess anything worth taking 
away can expect nothing but to have it torn from him, with 
every circumstance of tyrannical violence, by the agents of a 
rapacious government, it is not likely that many will exert 
themselves to produce much more than necessaries. This is 
the acknowledged explanation of the poverty of many fertile 
tracts of Asia, which were once prosperous and populous." 
Take, for instance, the very fertile and finely situated tract, 
once called Mesopotamia, from its position bet^veen the t\vo 
great rivers Tigi'is and Euphrates, — now a parched and dusty 
plain, roamed over, rather than inhabited, by a few tribes of 
half-starved Bedouin Arabs. Yet there stood, and there now 
stand the ruins of, the gi-eat city of Nineveh, that " exceeding 
great city," of three days' journey, which probably contained 
over half a million of inhabitants. What a vast suburban and 
rural population must have existed in the immediate vicinity, 
in order to supply that great and wealthy metropolis with 



THE SECURITY OF PROPERTY. 79 

food ! Over three thousand years ago, the banks of the Tigris 
must have been nearly as populous as are now the banks of 
the Seine near Paris. Their depopulation and consequent 
aridity, but few traces now remaining of the gigantic works 
by which that great plain was formerly irrigated, must be as- 
cribed to the constant sense of insecurity arising from many 
changes of dynasty, predatory inroads, invasion and conquest, 
and the rigors of war exercised by barbarian conquerors. Yet 
these invasions, so far as appears from history, were not so fre- 
quent, but that the people might with ease have recovered from 
them during the intervals, had not the constant fear that they 
might recur at any day gradually paralyzed all effort, till the na- 
tion at last wasted away, and a feeble remnant sought shelter 
among the mountains, leaving that fertile plain to desolation. 

Such are the evils of a government which cannot withstand 
aggression from abroad. Hardly less injurious in its effects is 
the government which is too feeble or indolent to protect the 
people against themselves ; which cannot enforce the laws, or 
guard the community against the machinations and violence 
of the turbulent, the discontented, and the ambitious, so that 
society is a constant prey to rapine, confusion, and civil broils. 
Hence the present condition of Mexico and most of the South 
American repubhcs, where, though the soil and climate are 
among the finest on earth, and mineral wealth abounds, yet 
agriculture is impeded, trade languishes, and manufactures 
cannot be estabUshed, the bonds of society being virtually dis- 
solved, and the country wasted by anarchy and misrule. 

Arbitrary exactions, uncertain in amount, and uncertain as 
to the time when they will be made, do vastly more injury 
than larger amounts taken by fixed and regular taxation. In- 
dustry will accommodate itself to heavy burdens, and even 
flourish under them, if the pressure be equable and constant, 
so that aU calculations respecting the future may be made with 
as much certainty as if there were no weight to support. The 
regular tax comes to be esteemed as one of the charges, or a 
part of the cost, of production, — having the same effect as a 
more rigorous climate, or a less fertile soil, would have, in in- 
creasing the amount of labor required. The people of Eng- 
land, for instance, are at this moment taxed more heavily, — 
they pay a larger sum to their rulers, than was ever levied from 



80 



HOW CAPITAL IS INCREASED. 



a population of equal size by the most cruel and despotic gov- 
ernment of ancient times. If it were possible to distribute the 
enormous weight of English taxation with perfect equality 
and fairness, maldng it bear on all interests alike, and on ev- 
ery individual in just proportion to his means, I should be far 
from considering it as any material obstacle to the prosperity 
of the country. But the changes which from time to time be- 
come necessary, or are thought to be necessary, in that distri- 
bution, — the great change, for instance, that was made by the 
abolition of the Corn Laws, the frequent changes in the sugar 
duties, and the uncertainty of the amount required by the Poor 
Laws, — are very serious evils. The change when completed 
in all its effects, the new law once thoroughly incorporated by 
time with the old ones, may be an improvement; but the 
transition is always injurious. Better a bad system, so that it 
be fixed, than a fluctuating and uncertain one. An alteration 
of the law, a sliifting of the burden, always produces some 
change in the du*ection of labor and capital, whereby a portion 
of the skill already acquired by practice is wasted, a portion of 
the machinery already built becomes useless, and time and 
capital must be consumed in learning new employments and 
constructing new machines. This is one evil caused by 
change ; and another is, that, most of the operations of indus- 
try in modern times being complex, and covering much time 
and space, people are tempted to engage in them only by the 
nice calculations that are made of their probable ultimate re- 
sults ; any uncertainty as to the manner in which these results 
may be affected by taxation, any probability that the law may 
be changed while the process is yet incomplete, may prevent 
the enterprise from being undertaken at all. It is not too 
much to say, that, in this country, for the last thirty years, 
there has not been a time when commercial and manufactur- 
ing enterprise was not materially retarded by the apprehension 
that the Congress then in session, or the ensuing one, might 
make some important modifications in the tariff of customs- 
duties. 

" The only insecm-ity," says Mr. Mill, " which is altogether 
paralyzing to the active energies of producers, is that arising 
from the government or from persons invested with its author- 
ity. Against all other depredators there is a hope of defending 



THE SECURITY OF PROPERTY. 81 

one's self. Greece and the Greek colonies in the ancient world, 
Flanders and Italy in the Middle Ages, by no means enjoyed 
what any one with modern ideas would call security; the 
state of society was most unsettled and turbulent ; person and 
property were exposed to a thousand dangers. But they were 
free countries ; they were neither arbitrarily oppressed, nor sys- 
tematically plundered by their governments. Against other 
enemies, the individual energy which their institutions called 
forth enabled them to make successful resistance. Their la- 
bor, therefore, was eminently productive, and their riches, 
while they remained free, were constantly on the increase. 
The E-oman despotism, putting an end to wars and internal 
conflicts throughout the empire, relieved the subject popula- 
tion from much of the former insecurity ; but because it left 
them under the grinding yoke of its own rapacity," — witness 
the administration of Verres in Sicily, which has been damned 
to everlasting fame by the eloquent invective of Cicero, — 
" they became enervated and impoverished, until they were an 
easy prey to barbarous but free invaders. They would neither 
fight nor labor, because they were no longer suffered to enjoy 
that for which they fought and labored." 

" Much of the security of person and property in modern 
nations is the effect of manners and opinion, rather than of law. 
There are countries in Europe where the monarch is nominally 
absolute; but where, from the restraints imposed by estab- 
lished usage, no subject feels practically in the smallest danger 
of having his possessions arbitrarily seized, or a contribution 
levied on them by the government." These countries — Rus- 
sia, for instance — are far better off in respect of secm-ity than 
France, where, not long ago, the institutions of government 
were nominally not unlike our own, but where there is great 
probability of a revolution once a fortnight. No government 
is ever wicked enough to aim directly and avowedly at the en- 
couragement of vice, the distress of innocence, and the punish- 
ment of goodness. Even an Asiatic despotism professes, and 
probably intends, to punish theft, perjury, fraud, and unpro- 
voked injury, in all cases where its own interest is not imme- 
diately concerned ; that is, of course, in the great majority of 
cases that arise among its subjects. It may omit many of the 
forms and precautions that civilized nations have come to ob- 



82 THE ENCOURAGEMENT OF MANUFACTURES : 

serve, as the safeguards of innocence and preservatives against 
unintentional wrong ; it may administer wild justice, but jus- 
tice is its aim ; it wields the sword against unprovoked aggres- 
sions upon persons or property, and often with terrible effect. 



CHAPTER VIII. 

THE INCREASE OF CAPITAL AS AFFECTED BY THE ENCOURAGE- 
MENT OF MANUFACTURES, AND BY THE CONCENTRATION OF 
THE PEOPLE IN CITIES AND TOWNS. 

The second of the moral causes indicated as affecting the 
increase of capital is, that such increase is most rapid in any 
country, when, from the variety of employments that exist 
there, most of its inhabitants may be engaged in those- occupa- 
tions for which they are peculiarly fitted by nature, which re- 
quire most skiU and intelligence, and in which, consequently, 
their labor is most productive. 

K the labor of one practised and skilful artisan is equal to 
that of at least three raw hands or rude laborers, then it is very 
much for the economical interests of a country, that as many 
as possible of its inhabitants should be skilled artisans, and as 
few as possible should be raw laborers. We say " as many as 
possible " ; because some rude labor is always needed. There 
must be, in every country, some hewers of wood and drawers 
of water, — some work that tasks a man's thews and sinews 
very severely, while it affords but little employment to his 
brains, — such work as is often performed by machines and 
domesticated animals, but which the circumstances of time 
and place sometimes absolutely require to be performed by 
men, — usually by men who are capable of nothing else. 
There is a large proportion of such work required in agricul- 
ture, where one skilful and careful farmer can profitably direct 
the exertions of a dozen or more hands, in such operations as 
ditching, fencing, making hay, and the like. Many, though 
not so many, laborers of this lowest class are also required in 



THE CONCENTRATION OF THE PEOPLE. 83 

manufactures, where numerous skilled and expert hands re- 
quire to be waited on by mere porters and hewers, in order 
that the valuable time of the former may not be wasted on the 
coarser operations that are necessary. Thus the bricklayer 
must have his hod-carrier ; the driver of the steam-engine must 
have his fireman ; the printing-office must have its errand-boys, 
technically called " devils." There is work even on board a 
ship at sea, which can only be performed by boys. Commerce 
demands a higher average of skill and intelligence from those 
who are engaged in it than any other of the great branches of 
industry ; yet even here, in the various operations subsidiary 
to the transportation and exchange of goods, there is a consid- 
erable demand for this lowest kind of exertion. We say a 
"demand" for it, because the fact that laborers of this class 
expect only the lowest rate of wages, causes them to be sought 
for in preference to all others, when the work is such that they 
can perform it. 

From various causes, there is an abundance of this kind of 
labor in the market in almost every country. The stinted 
bounty of nature, casualties that lessen the average capacity, 
vice, ignorance, and extreme poverty, are among the causes 
which here keep the supply up to the demand, and, in nearly 
all cases, make it go greatly beyond the demand. The only 
evil to be dreaded is a superfluity of this class of laborers, — a 
superfluity which sometimes, as at present in Great Britain 
and Ireland, exists to a frightful extent. Popular education, 
as that phrase is commonly understood, meaning the general 
cultivation of the intellect, though unquestionably a very pow- 
erful agent for lessening this evil, is not the only preservative 
against it. A man whoUy uneducated in the common mean- 
ing of the word, that is, unable either to write or read, may yet 
become a very expert workman in the finest and most difficult 
kinds of manufacture. On the other hand, men may be quite 
well taught, and still be unable to get any but the rudest sort 
of work to do, or to obtain employment more than half the 
time even at that. The Scotch, for instance, are a very well 
educated people ; the standard of instruction among them, for 
all classes, is probably quite as high as it is here in New Eng- 
land. Yet there is as large a surplus of rude labor in Scot- 
land, in proportion to its population, as in England, — proba- 
bly larger. 



84 THE ENCOURAGEMENT OF MANUFACTURES : 

The loss which a country suffers by having a large portion 
of its people condemned to this rude labor, when most of them 
are capable, or may be made capable, of much finer work or 
more effective industry, is very great ; so great, indeed, that I 
doubt whether any other single cause of national poverty can 
equal it. Men are differently constituted by nature, or by 
those circumstances which, in early youth, determine the bent 
of their inclinations and the applicability of their powers to 
one task rather than another. The labor of a people is effect- 
ually used only when the field of employment in the country 
offers scope for every variety of taste and talent, and when no 
formidable or insuperable obstacles prevent any individual frorri 
finding out and performing just that task which God and na- 
ture appointed him to do. K agriculture alone is pursued, all 
the mechanical skill of the people is wasted, — aU their fitness 
for commerce, all their enterprise in trade, is wasted. K four 
millions are obliged to be rude laborers, when three millions of 
them might be sldlled artisans, the labor of one of the latter 
being supposed to be equal in value to that of at least three of 
the former, then the value actually created is to the value 
which might be created as four is to ten ; in other words, the 
yearly product of the national industry might be two and a 
half times greater than it is ; and the yearly unproductive con- 
sumption need not be at all increased, since, in either case, 
there would be four milhons of people to be supphed with 
food, clothing, and shelter. Of course, — and here comes the 
application of the principle to present circumstances, — the 
country could afford to pay a higher price for their manufac- 
tures, for the sake of having the articles manufactured at home. 
They could afford to spend more, for they would have more to 
spend. 

For illustration, we will take the two extreme cases of Ire- 
land and Massachusetts. To avoid burdening the memory 
with statistics, we shall employ the nearest round lu^mbers. 
The population of Ireland, in 1851, was about 6| millions ; 
that of Massachusetts, in 1850, was about one million. Ac- 
cording to the Irish census of 1841, which was taken with ex- 
traordinary pains and minuteness, the whole number of fami- 
lies in Ireland was one million and a half, of whom one million, 
or just two thirds of the whole, were engaged in agriculture ; 



THE CONCENTRATION OF THE PEOPLE. 85 

and only three hundred and fifty thousand families, or a little 
less than one fourth of the whole, were employed in manufac- 
tm-es and trade. It is obvious that the agricultural population 
was excessive, for in England, where agriculture is carried to 
greater perfection than in any other country on the face of the 
globe, there was but one agricultural family to every thirty-four 
acres of arable land, while in Lreland there was one such fam- 
ily to every fourteen acres. In Massachusetts, according to the 
census of 1850, out of a free male population, over fifteen years 
of age, amounting to 295,300, about 194,600, or nearly 66 per 
cent, were employed in commerce, manufactures, and the me- 
chanic arts, mining, and navigation, and only 84,700, or some- 
what over 28 per cent, in agricultm'c and its subsidiary em- 
ployments.* The proportions in Ireland, as we have seen, were 
about 23 per cent in commerce and manufactures, and 66 per 
cent in agriculture. 

Now contrast the condition of the people in the two coun- 
tries. The paupers in Massachusetts are about one in fifty of 
the whole population ; but as nearly half of these are recent 
English or Irish immigrants, principally Irish, the real propor- 
tion is about one in a hundred. In Ireland, according to the 
Returns of the Poor Law Commissioners, the whole number 
of paupers who received rehef in the workhouses during the 
year ending September 29th, 1851, added to the number of 
out-door poor who were assisted at the public charge, was 
755,357, or nearly twelve per cent of the total population. 
Three years before, the number of paupers was at least thrice 
as great. The cost of relieving these 755,357 paupers was 
nearly six millions of dollars. It should be remembered, also, 
that during the five years preceding September, 1851, the emi- 
gration from Ireland averaged at least 200,000 persons a year, 



* The numbers actually returned by the census are, 146,002, or 49 per cent, in 
"commerce, trade, manufactures, mechanic arts, and mining"; 55,699, or 19 per 
cent, in "agriculture," 57,942, or 20 per cent, in "labor not agricultural," and 
19,598, or 7 per cent, in " sea and river navigation." As navigation is subsidiary 
to commerce, I have added the number of persons engaged in it to those returned 
under the head of commerce ; and have also ranked under the same head 28,971 
persons, or one half of those enumerated as engaged in " labor not agricultural." 
As the compiler of the census remarks that, although laborers were regarded as " non- 
agricultural," many of them are probably farm laborers, I have added the other half 
of their number to the agricultural population. 



86 THE ENCOURAGEMENT OF MANUFACTURES : 

most of the emigi'ants being of that class who would probably 
have become paupers had they remained at home. 

Can we, then, attribute this great, this frightful difference, to 
the unequal distribution of the bounty of Providence, — to the 
fact that the Irisli are crowded together on land not broad or 
fertile enough to supply them all with food, while we in Mas- 
sachusetts are fattening on the spontaneous riches of the earth ? 
According to the estimate which we have already formed of the 
effect upon national well-being of what are termed " natural ad- 
vantages," this is not very likely to be the case ; but let us look 
at the facts. Here, where our only natural exports are ice and 
granite, it is notorious that we do not raise food enough for 
our own consumption. We import nearly all our wheat, the 
chief article of our bread-stuffs, and also buy from the other 
States large droves of cattle. But Ireland raises more food 
than is necessary for her sustenance, and exports annually vast 
quantities of provision to England. Her export of the cereal 
grains, chiefly oats, and of other edible products of the soil, in- 
creased, from less than seven millions of bushels in 1817, to 
twenty-six millions of bushels in 1845. Even in 1847, the 
year of famine in Ireland, nearly eight millions of bushels of 
grain and meal were exported; and in the following year, 
which was one of great scarcity, these exports rose again to 
sixteen millions. The exportation of beef, pork, butter, and 
other animal products, has also gone on increasing, though in 
a lower ratio. In each of the four years from 1846 to 1850, 
about 200,000 horned cattle and 250,000 sheep and lambs 
were shipped from Ireland to Great Britain. It is certain, 
then, that the penuriousness of natm'e is not the som-ce of the 
difficulty ; it is not fertile land which is wanting, but wealth ; 
and the people do not produce that, because the field of em- 
ployment is so limited that very little except rude labor is pos- 
sible. There is no opening for the exertion of sldll and enter- 
prise, and whatever natural qualifications the people may 
possess in these respects cannot be developed. 

Nearly the whole native population of Massachusetts being 
occupied with tasks that require skill, care, and ingenuity, we 
depend for a supply of rude labor almost exclusively upon im- 
migrant foreigners. These do all the coarse work in building 
our railways and canals, and in the several other occupations 



THE CONCENTRATION OF THE PEOPLE. 87 

that require nothing but muscular strength. The rude labor, 
to which alone they have been accustomed, has so incapaci- 
tated them for higher tasks, that it is now an established prin- 
ciple in our large manufactories, that the machines cannot 
profitably be worked if more than one third of the operatives 
be foreigners. It is not only more economical to pay the 
higher wages required by native workmen ; but foreigners gen- 
erally, and the Irish in particular, cannot be employed at all, 
except in that small proportion to the whole number of hands 
which will make it possible to restrict them to the lower or less 
difficult tasks. Because our own people are so generally 
trained to the finer and more productive branches of industry, 
new expedients are constantly invented by them for perform- 
ing the drudgery by machines. The locomotive steam exca- 
vators, that are often employed on the line of a proposed rail- 
road, and the various contrivances that have been patented for 
cutting and hoisting ice on our ponds, are instances of this 
sort of labor-saving machinery. The superfluity and conse- 
quent cheapness of rude labor in foreign countries render these 
expedients unnecessary, and the work is profitably done by 
hand. 

Consider the rapid growth of capital in this State, which is 
the result of this most effective application of its industry, and 
also the immense unproductive consumption of the people, — 
their ample supply, not only of the necessaries, but of the 
comforts and luxuries of life ; and contrast these with the pov- 
erty and destitution of Ireland. The productive part of the 
consumption leads to the increase of the national wealth ; the 
unproductive part is an index of the general weU-being of the 
community. In Ireland, the people are literally too poor to 
create a demand for anything but potatoes ; and the country 
therefore affords hardly any market either for British or Irish 
manufactures. There is but little opening there for the me- 
chanic arts, or for the many small occupations which are cre- 
ated by a due regard for the comforts and conveniences of life. 
The field of employment for skilled industry is consequently 
limited almost to a span, and the bulk of the people are driven 
back upon rude labor in agriculture, — to ditching, cutting turf, 
and planting potatoes ; the meagre returns fi:om such toil being 
hardly sufficient to keep them from starvation. The United 



88 THE ENCOURAGEMENT OF MANUFACTURES : 

States, on the other hand, afford a better market for manufac- 
tured goods than any other country of equal population on the 
globe ; because the universal prosperity of the community en- 
ables them to consume more. If the relation of cause and 
effect in this proposition be reversed, so as to say that the peo- 
ple consume more because they produce more, it will amount 
to the same thing, and be equally favorable for the purposes of 
the argument. More wealth is created, more is consumed, 
and the amount of enjoyment is thereby increased. 

Unquestionably, we pay a somewhat higher price for our 
manufactured goods, as a return for the privilege of manufac- 
turing them at home, and thereby having a field of employ- 
ment for our skilled labor. But what does this tax amount to ? 
The average duty levied by the present tariff on our chief arti- 
cles of import is less than thirty per cent. But as one of the 
chief objects of a protective duty is to guard against the inju- 
rious fluctuation of prices in foreign markets, whereby we 
might be deluged with imported goods one year, and be very 
scantily supplied with them the next, the duty is fixed with ref- 
erence to the lowest price at which they are ever sold abroad, 
and not with reference to the average price. The effect of a 
protective duty of thirty per cent, then, at the utmost, is to 
raise the average price fifteen per cent. 

Whenever we have occasion for any of these small articles, 
we are obhged to spend a dollar for what might be obtained 
for eighty-five cents, if we would buy of foreigners ; that is, we 
might save this fifteen cents, if we were wilhng to give up all 
our home manufactures, all opportunity for earning high wages 
by the exhibition of skill and ingenuity, and to confine the 
whole people to the comparatively rude pursuits of agriculture, 
thereby overstocking the market with food, and reducing the 
gains of farmers all over the countryi Ireland has acted upon 
this rule, laid down by most political economists, — always to 
buy in the cheapest market, whatever may be the effect upon 
domestic enterprise. Grain and other provision can be raised 
most cheaply in Ireland, owing to the low rate of wages there ; 
manufactures can be produced to best advantage in England, 
owing to the abundance of English capital. Ireland, therefore, 
raises food to buy English manufactures with ; and the present 
condition of the Irish people is the consequence. They have 



THE CONCENTRATION OF THE PEOPLE. 89 

the advantage, it is true, of the offer of the manufactured goods 
at prices fifteen per cent less than what they command in 
America; — an advantage which would be more sensibly felt, 
if the Irish were not too poor to purchase them at any price. 

The proposition, I think, can be laid down as a general 
one, that a country, the population of which is chiefly or alto- 
gether devoted to agriculture, cannot become wealthy, wha1>- 
ever may be the fertility of its soil or the favorableness of its 
situation. Of course, its inhabitants must buy manufactures 
with food ; that is, they must exchange the products of rude 
labor for the products of skilled labor; that is, again, they 
must give the labor of three persons for the labor of one person. 
The general principle of economical science is, to cause the in- 
dustry of a country to take that direction in which it can be 
applied to the greatest advantage. Now the fertility of the 
soil is one advantage, and the capacity of the people for the 
higher departments of labor, their skill and enterprise, is an- 
other. There is no reason for allowing either of these advan- 
tages to remain latent or unworked ; and in choosing between 
them, we are to be decided by then- comparative amount and 
importance. Fortunate as this country is in the extent of its 
territory and the richness of its soil, this advantage is as noth- 
ing, — nay, it would turn out to our positive detriment, — if, 
in consideration of it, we should sacrifice the talents and the 
energies of our people, — if we should doom our whole popu- 
lation to the rude labor of turning up the earth, for the sake of 
the trifling advantage of purchasing our manufactured goods 
at a little lower price. 

Even Adam Smith remarks,* that " A small quantity of 
manufactured produce purchases a great quantity of rude prod- 
uce. A trading and manufacturing country, therefore, natu- 
rally purchases, with a small part of its manufactured produce, 
a great part of the rude produce of other countries ; while, on 
the contrary, a country without trade and manufactures is gen- 
erally obliged to purchase, at the expense of a great part of its 
rude produce, a very small part of the manufactured produce 
of other countries. The one exports what can subsist and ac- 
commodate but a very few, and imports the subsistence and 



Wealth of Nations, Book IV. Chap 





90 THE ENCOURAGEMENT OF MANUFACTURES : 

accommodation of a great number. The other exports the ac- 
commodation and subsistence of a great number, and imports 
that of a very few only. The inhabitants of the one must al- 
ways enjoy a much greater quantity of subsistence than what 
their own lands, in the actual state of their cultivation, could 
afford. The inhabitants of the other must always enjoy a 
much smaller quantity." 

One mode in which the encouragement of skilled labor, 
leading to the interfusion of manufactures and commerce with 
agriculture, favors the increase of national capital, is, by con- 
centrating the population in cities and towns. Agriculture 
is necessarily diffusive in its effects ; the laborers must be dis- 
tributed over the whole face of the territory which they culti- 
vate. A few large cities spring up at great distances from 
each other, as an outlet for the commerce created by the ex- 
change of the surplus agricultm'al products for manufactured 
goods and other necessaries brought from abroad. The great 
agricultural districts of Continental Europe, the wheat-plains 
of Poland and Southern Russia, find an outlet at the cities of 
Dantzic and Odessa ; and we may remark in passing, that 
the poverty and general low condition of the inhabitants of 
these districts show the effects of confining a whole population 
to the rude labor of tilling the ground. It may be, that, from 
their low capacity, and their want of education and general 
intelligence, they are incapable of anything better. K so, the 
fact only strengthens our argument ; wherever the capacity ex- 
ists, if it be not developed, if a field of employment be not 
offered to it, the same results must follow. Manufactm-es and 
commerce, on the other hand, requiring a great division of la- 
bor, and also that the participators in the work should be near 
each other, necessarily create a civic population. They will 
only flourish in cities and towns, and they are the only means 
of creating cities and towns. 

This principle, perhaps sufficiently obvious in itself, is strik- 
ingly illustrated by the differences among the States of this 
Union. Our Southern and Southwestern States are almost ex- 
clusively agricultural ; and south of the northern boundary of 
Virginia and Kentucky, there is but one city, New Orleans, of 
the first class, numbering over 100,000 inhabitants, and but 
two cities of the second class, Charleston and Louisville, each 



THE CONCENTRATION OF THE PEOPLE. 91 

numbering over 40,000. These cities, of course, have sprung 
up from the same causes which sustain Dantzic and Odessa ; 
they afford an outlet for the surplus produce of the vast agri- 
cultural districts which depend upon them ; manufactures have 
hardly contributed at all to their growth. If we reckon as civic 
population those only who dwell in cities or towns having at 
least 11,000 inhabitants each, Massachusetts and Rhode Isl- 
and, two manufacturing States, with an aggregate population 
of only 1,142,059, have a greater civic population than these ten 
agricultm-al States, who number in the aggregate over eight mil- 
lions. The civic population of the two manufacturing States 
is nearly one third of their whole number ; that of the ten ag- 
ricultural States is about one twenty -fifth of the whole. The 
cities in Massachusetts and Rhode Island have been created 
almost entirely by manufacturing enterprise, these States not 
being remarkable for surplus agricultural produce. Wherever 
there is a considerable fall of water, affording power to move 
machinery, there a new city springs up, though the soil in the 
neighborhood should be as barren as the desert of Sahara. But, 
under the demand for agricultural produce created by that city, 
the dry sand and the hard rock are converted into gardens 
of firuit and vegetables ; while the plain of Eastern Virginia, 
once almost unsurpassed for fertility, its powers being now ex- 
hausted, is relapsing in part into its primitive wild condition. 

Cities and towns are the great agents and tokens of the in- 
crease of national opulence, and the progress of civilization. 
The revival of effective industry, which preceded, and in part 
caused, the revival of learning in Europe, took place through 
the agency of the free towns and great trading cities, which 
sprang up most numerously in Germany and Italy, where they 
afforded a refuge for the arts and the pursuits of peace. Their 
establishment was the first effective blow given to the feudal 
institutions of the Continent. Commerce and manufactures, 
to which their walls afforded protection against the chances of 
war and the rapacity of the warlike nobles, " gradually intro- 
duced order and good government, and with them the Hberty 
and security of individuals, among the inhabitants of the coun- 
try, who had before lived almost in a continual state of war 
with their neighbors, and of servile dependency upon their su- 
periors. By affording a great and ready market for the rude 



92 THE ENCOURAGEMENT OF MANUFACTURES : 

produce of the country, they gave encouragement to its culti- 
vation and fui'ther improvement." The word civilization itself, 
as if to indicate the origin and home of the thing, is derived 
from civis, the inhabitant of a city. Sismondi attributes the 
greater humanizing and civilizing influence of the colonies 
of the ancients over those of the moderns to the fact that the 
former founded cities, while the latter spread themselves over 
much land. In the town, man is in the presence of man, not in 
solitude, abandoned to himself and his passions. The history 
of the colonization of the borders of the Mediterranean, he 
says, might also be called the history of the civilization of the 
human race. 

The Egyptians, the Phoenicians, the Greeks, and the Ro- 
mans successively formed colonies upon the same general plan. 
Each of these nations became in succession the leaders, the 
masters, of the civilized world, in refinement, learning, and the 
arts ; and the colonies which they established were the means 
of diffusing these blessings among the rude tribes within whose 
territories the new settlements were formed. When the mother 
country became too populous, when the inhabitants of its wall- 
inclosed cities became straitened for room, detachments of 
them were sent out to found new homes for themselves on the 
coasts of other lands. The colony was to take care of itself, 
to be independent of the mother country, from the outset. 
Hence, to protect themselves against the savage tribes among 
whom they came to dwell, they were obliged, as the first step, 
to build a city and encii'cle it with fortifications. Within its 
walls they all slept ; and they did not wander so far from its 
precincts during the daytime, but that they could at any hour 
hear the trumpet-call, wliich, like tlie alarm-bell of modern 
times, might summon them back to the defence of the walls. 
Hence they cultivated only a narrow territory, lying within 
sight of, or at a short distance from, the city ; and to obtain 
food from this resti'icted space for their whole number, they 
were obliged to exhaust all the arts of cultivation upon it ; it 
was tilled, and it bloomed, like a garden. For greater secu- 
rity, a portion of it was generally inclosed within the fortifica- 
tions. This pomcpriiim, or cultivated space under the walls, 
was usually divided into small strips, and allotted to the sev- 
eral heads of families among the citizens. A portion of the 



THE CONCENTRATION OF THE PEOPLE. 93 

colonists devoted themselves to tillage, and raised food enough, 
or nearly enough, for the whole city. A larger portion within 
the walls applied themselves to the mechanic arts and to com- 
merce, exchanging their manufactured goods for food, either 
with their own agricultural citizens, or with the native inhabit- 
ants of the soil, when they could open peaceful intercourse 
with them, or with the denizens of other shores, perhaps of the 
mother country, to which they sent their ships. As they need- 
ed only a narrow strip of territory, which they often obtained 
by fair purchase from the aborigines, the hostility of the latter 
was not excited ; and the mutual benefits of trade being soon 
felt, the natives came to regard the colonists as their benefac- 
tors and best friends. A knowledge of the arts, a taste for the 
comforts and luxmies of life, learning and religion, were thus 
diffused among them ; and in then* simplicity and gratitude, 
they often reverenced the authors of their civilization as super- 
human beings, and paid them divine honors. Many, if not 
most, of the gods and goddesses of ancient mythology were 
originally only the founders of art-bringing, knowledge-and-re- 
hgion-difFusing colonies, whose beneficent influence, handed 
down to grateful remembrance by tradition, — by the spoken, 
not the written word, — really seemed to admiring posterity 
divine. The colony, the city, was opulent and refined from 
the beginning ; founded by the most enterprising citizens of 
the mother country, who brought their wealth, their cultivated 
tastes, and their industrious and adventurous habits along with 
them, it became almost at once a rival of the parent city in 
learning, industry, and the arts. Temples and theatres were 
built ; the drama flourished ; schools of eloquence were estab- 
lished ; manufactures of costly and elegant fabrics were begun ; 
and commerce started into life with all the vigor of youth and 
the large resources of manhood. 

Brief as this sketch is, the classical reader will recognize in 
it, I think, the principal features of those colonies which the 
Phoenicians established along the northern shore of Afi-ica, the 
Greeks along the coasts of Asia Minor, Sicily, and Magna 
Greecia or Southern Italy, and the Romans in Gaul and Spain. 
Carthage, the great commercial and manufacturing city of an- 
cient times, the rival of E-ome, may be taken in its history as 
a type of them all ; and in the fanciful picture which, many 



94 THE ENCOURAGEMENT OP MANUFACTURES: 

years after its destruction, the Roman poet drew of its sup- 
posed origin, of the scene which it presented while the walls 
of the city were building, we recognize what was the idea, even 
so late as Virgil's time, of the mode of founding a colony.* 

Modern colonies, on the other hand, are, from the outset, de- 
pendencies of the mother country, to which they constantly 
look for protection and support. They are often planted by 
those who do not intend to reside there permanently, but sim- 
ply wish to gather again in a new country the wealth which 
they have dissipated in an old one, and then to return to their 
former home in order to enjoy it. Thus relieved from all fear 
of attack from the aborigines, their first care is to get posses- 
sion of as much land as possible, this being the most obvious 
and plentiful source of riches. Lidividuals or joint-stock com- 
panies obtain grants of land measured by the league ; and their 
rapacity provokes the vengeance of the natives, at the same 
time that it leads to their own isolation and defencelessness. 
The territory which they acquire is out of aU proportion to 
their wants, their physical strength, or their capital ; they culti- 
vate only here and there a very fertile spot, where the powers 
of the soil are soon spent by a succession of exhausting crops ; 
and in the careless style of agriculture to which they become 
accustomed, through their dependence on the extent and natu- 
ral richness of their land, is soon lost all remembrance of the 

* " Conveniunt, quibus aut odium crudele tyranni, 
Aut metus acer erat ; naves, quce forte paratse, 
Corripiunt, onerantque auro ; portantur avari 
Pygmalionis opes pelago : dux foemina facti. 
Devenere locos, ubi nunc ingentia cemes 
Moenia, surgentemque novse Carthaginis arcem: 
Mercatique solum, facti de nomine Byrsam, 
Taurino quantum possent circumdare tergo. 

Jamque ascendebant collem, qui plurimus urbi 
Imminet, adversasque adspectat desuper arces. 
Miratur molem ^neas, magalia quondam ; 
Miratur portas, strepitumque, et strata viarum. 
Instant ardentes Tyrii : pars ducere muros, 
Molirique arcem, et manibus subvolvere saxa ; 
Pars optare locum tecto, et concludere sulco. 
Jura, magistratusque legunt, sanctumque senatum. 
Hie portus alii effodiunt ; hie alta tlieatris 
Fundamenta locant alii ; immanesque columnas 
Rupibus excidunt, scenis decora alta futuris." 



THE CONCENTRATION OF THE PEOPLE. 95 

agricultural art and science which they brought with them from 
their old home. Widely separated from each other, amply 
supplied with food by the bounty of nature, but destitute of the 
manufactm-ed articles on which depend the comforts and even 
the decencies of life, out of the reach of the law, and beyond 
the sphere of education, they rapidly approximate the condition 
of the savages whom they have just dispossessed. They be- 
come " squatters," " bushmen," " backwoodsmen," whose only 
enjoyments are hunting and intoxication, whose only school- 
room is the forest, and whose sense of justice is manifested 
only by the processes of Lynch law. They are doomed to the 
solitary, violent, brutal existence, which destroys all true civil- 
ization, all sympathy with other men, though it increases 
strength of body, adroitness, courage, and the spirit of adven- 
ture. The want of local attachments, and an insatiable thirst 
for wandering and adventure, are, I fear, the most striking 
traits in the character of the whole population of our Missis- 
sippi valley. Their homes even in that fair region are but 
homes of yesterday ; they had only pitched their camps on the 
banks of the Ohio and the Wabash, while on then- way to the 
Sacramento and the Columbia. The truant disposition which 
carried them over the Alleghanies, hurries them onward to 
the Rocky Mountains. I do not go so far as an eminent 
thinker of our own day, who has expressed in eloquent lan- 
guage his fears lest these constant migrations should lead our 
countrymen back to barbarism ; but it is certain that the " pi- 
oneers of civilization," as they have been fondly called, leave 
laws, education, and the arts, aU the essential elements of civ- 
ilization, behind them. They may be the means of partially 
civUizing others, but they are in great danger of brutalizing 
themselves. 

Strangely enough, the only colony of modern times founded 
on the principles which governed the ancients in the establish- 
ment of their colonies is one commenced by a set of half- 
crazed fanatics in our own far-distant territory of Utah or Des- 
eret. Here, as well as at their former place of settlement in 
nhnois, the Mormons appear to have begun their colony by 
founding a city, within or near which their whole population 
is to be collected, so that the mechanic arts and all branches 
of manufacture may be established at the same time that they 



96 THE ENCOURAGEMENT OF MANUFACTURES : 

make their first attempts in agriculture. The name of then- 
present chief city in Deseret is New Hierusalem, and it is sit- 
uated on the right bank of the Western Jordan, which empties 
into their Dead Sea. I borrow the following account of it 
from an Historical Discourse, delivered some years since, by 
Thomas L. Kane. 

" Its houses are spread, to command as much as possible the 
farms, which are laid out in wards or cantons, with a common 
fence to each ward. The farms in wheat already cover a space 
greater than the District of Columbia, over all of which they 
have completed the canals and other arrangements for bounti- 
ful irrigation, after the manner of the cultivators of the East. 
The houses are disti-ibuted over an area nearly as large as the 
city of New York. They will soon have completed a large 
common storehouse and granary, and a great-sized public bath- 
house. One of the many Avonderful thermal springs of the 
valley, a white sulphm- water of the temperature of 102° Fah- 
renheit, with a head of ' the thickness of a man's body,' they 
have already brought into the town for tliis purpose." 

It is remarkable, that one of the latest improvements or dis- 
coveries in economical science, Mr. Wakefield's theory of colo- 
nization, consists in the recognition of the fact, that the ancient 
mode of planting colonies is far preferable to the modern one. 
Mr. Wakefield perceived that a country cannot have a produc- 
tive agriculture unless it has a large town population, who may 
supply the agriculturists with manufactured articles, while the 
agriculturists supply them with food. Both parties are thus 
fm-nished with a market for then- surplus produce, and with the 
articles that they most need in exchange for it. He showed 
that the modern fashion of establishing new settlements, — 
" setting down a number of families side by side, each on its 
own piece of land, and all employing themselves in exactly the 
same manner, — though, under favorable circumstances, it may 
assm-e to those families a rude abundance of mere necessaries, 
can never be other than unfavorable to great production or 
rapid growth." The situation of Oregon hardly ten years ago 
affords a striking illustration of this truth ; the settlers, for want 
of a market, were obliged to feed their horses with the finest 
wheat, while their own dwellings were nearly destitute of all 
the comforts of life. Wakefield's "system consists of ar- 



THE CONCENTRATION OF THE PEOPLE. 97 

rangements for securing that every colony shall have, from the 
first, a town population bearing due proportion to its agricul- 
tural, and that the cultivators of the soil shall not be so widely 
scattered as to be deprived by distance of the benefit of that 
town population as a market for their produce." When land 
was plenty and free immigrants scarce in New Holland, the gov- 
ernment found it convenient to make liberal gifts of territory ; 
and accordingly, tracts varying in size from 10,000 to 50,000 
acres were granted to various individuals. I borrow from the 
North American Eeview a brief outline of the system. 

Mr. Wakefield argued thus : — " The welfare of any com- 
munity depends very much upon such a division of labor as 
shall fill every trade, profession, and employment with good 
men, and not overload any of them. If land in any country is 
so cheap that all are able to become landholders, there will be 
no laborers, no farm-hands, or mechanics ; a semi-barbarism 
will follow; no growth in wealth or civilization will take place, 
and the country will be stationary or retrograde. K, therefore, 
you would have a colony progressive and civilized, you must 
put your lands so high as to keep a proper proportion of the 
inhabitants in the labor-market seeking employment, and yet 
not so high as to prevent as many from buying real estate as 
can use it to advantage with the help of such laborers. If, 
then, England wishes Australia to grow in riches and good- 
ness, let her sell the lands at a fixed price, never taking less, 
and in fixed quantities, never selling less ; and let her apply 
the revenue arising from these sales to the transportation of 
free, honest laborers to the points where they are needed. In 
this way, the labor-market of New Holland will be supplied ; 
the expense of supplying working hands will be paid by the 
lands of the colony ; no more land wiU be taken up than can 
be worked to advantage ; population will be concentrated, 
wealth will accumulate, and knowledge and virtue advance." 

Mr. Wakefield's theory was good, but a practical difficulty 
obstructed its application. The government, adopting his 
views, put their lands up to a high price ; and the immigrants, 
consequently, instead of purchasing them, or of remaining as 
laborers on the lands pm-chased by others, pushed farther into 
the interior, and " squatted " on the best land they could find, 
without paying anything. In those vast unsettled regions, 
9 



98 THE ENCOURAGEMKNT OF MANUFACTURES : 

they knew very well that they were out of reach of the sheriff. 
Thus, the very measures adopted for concentrating them, and 
keeping them within the range of civilization and law, led to 
their wider dispersion and utter lawlessness. 

It is curious that the United States system of disposing of 
the public lands, adopted in all its essential features as far back 
as 1800, has worked better than any other plan which has yet 
been devised. The land is carefully divided by the govern- 
ment surveys into townships six mUes square, each of these 
being subdivided into thirty-six sections, of one square mile, or 
640 acres, each. All is held at a minimum price of $ 1.25 an 
acre ; and the sales are made at public auction, as rapidly as 
the progress of the population seems to require. Lands which 
will not bring $ 1.25 an acre at the public sale, are still held 
by the government subject to entry at any future time, at pri- 
vate sale and at the minimum price. Any person can select a 
quarter, or even an eighth section, — 160 or 80 acres, — wher- 
ever he can find one sm-veyed and not yet sold, and, by making 
a record of his intention to occupy and settle it himself, he can 
secure what is called the " preemption right " ; — a right which, 
partly by the force of law and partly by custom, amounts to a 
privilege of purchasing that land at the minimum price of 
$ 1.25 an acre, whenever the government shall think proper to 
sell it, which it will do when the settlement is so far advanced 
as to render it probable that most of the land in the vicinity 
will bring that price. Thus the actual settler in truth obtains 
his land on credit, though all actual sales are for cash. He 
has credit till the actual sale is ordered ; and some years may 
intervene, during which he may proceed to clear and cultivate 
his land, and actually obtain enough from it to make up its 
price, secure that no one will overbid him, and that he cannot 
be obhged to pay more than $ 1.25 an acre for it, however 
great may be his improvements. Five per cent is reserved 
from the proceeds of the sales, to be expended, three fifths 
for making roads to the newly settled territory, and two fifths 
for the support of seminaries of learning therein. 

I say this system has worked well, the only evil experi- 
enced under it being, that speculators will sometimes buy up 
large tracts not subject to preemption right, at the minimum 
government price, and hold them for an indefinite period, hop- 



THE CONCENTRATION OF THE PEOPLE. 99 

ing that, as the population gradually close up and concentrate 
around them, they may again be brought into market at a 
much advanced price. While thus held, they remain unoccu- 
pied, — broad patches of wilderness among the settlements, — 
obstructing communication between the surrounding lands, 
and barring out occupation and improvement. But there is a 
check to this evil in the fact, that such lands are subject to 
State taxation, though they are tax-free before they are sold by 
the United States ; and the taxes being proportioned to the 
rise in value of the property, it is not for the interest of the 
speculators to retain the land a long time. 

But the inhabitants of the Western States make a great 
mistake when they clamor for a reduction of the minimum price 
at which the public lands are now held, and even demand that 
they shall be offered, in limited quantities, as a free gift to ac- 
tual settlers. Their object, of course, in making these demands, 
is to stimulate the spirit of emigration to the West, so that the 
population there may more speedily become dense, and the 
value of the lands already settled thus be enhanced. The 
object is a good one ; but if there is any force in the consid- 
erations now adduced, the means adopted will tend rather to 
check than promote its attainment. It is surely not for the 
interest of sparsely settled States, like Indiana, lUinois, and 
Michigan, that the great wave of emigration, though broad- 
ened and deepened, should only roU over them, to be arrested 
at last by the farthest limits of Iowa and Minnesota, or per- 
haps to pass much farther, and, dashing against the side of the 
Rocky Mountains, to throw its spray over their summits into 
Oregon and California. But we may see that any great re- 
duction in the price of the public lands will surely have this 
effect. The most eligible land in the three States first men- 
tioned has already been taken up by individuals, that portion 
which yet remains in the hands of government being either less 
fertile, or more distant from navigable streams and other means 
of communication, or situated in a less salubrious or conven- 
ient region, than the tracts first selected for purchase. They 
have long been in the market, and have not yet found a buyer. 
Even now, most of the emigrants pass by them, seeking pub- 
lic lands which are more remote from their former homes, 
but which, in every other respect, are superior to these long- 



100 



THE ENCOURAGEMENT OF MANUFACTURES : 



neglected spots, which a former generation of immigrants have 
avoided. Any general reduction of the government price could 
not affect this relative eligibility of the nearer and more distant 
lands. Reduce the price to nothing, — give away the lands al- 
together, — and the emigrant will still pass on, pushed forward 
by the emigrant's fond illusion, that the farther from home, the 
nearer to El Dorado. 

Again, what is most needed for an increase of the prosperity 
of the West — of that portion of it, at least, which lies on this 
side of the Mississippi — is, not that the lands yet in the pos- 
session of government should become private property, but 
that the population should be concentrated on the tracts al- 
ready owned by individuals, though in great part still covered 
by the primeval forest. To enhance the value of these broad 
regions, the people must be massed together, towns and cities 
must be established, manufacturing and commercial industry 
must be added to agricultural, and the hut of the backwoods- 
man must give place to the well-furnished abode of civilized 
and enlightened man. It would be an ill mode of enhancing 
the value of the farms of individuals, to offer lands in their im- 
mediate vicinity at a nominal price, or at no price at all. The 
passion for owning land, which converts nearly all the new 
settlers in our Western States into farmers, however ill fitted 
for such occupation by their previous pursuits, is as injurious 
to agriculture as to the other great branches of industry. The 
land is held by those who, from defect of experience or want 
of capital, are unable to develop its resources, or even to re- 
move the forest from a tithe of their domains. Corn, fuel, and 
meat are abundant, because prodigal nature affords so many 
facihties for the production of them, that the skill, enterprise, 
and knowledge of the cultivator are little needed, and are 
therefore imperfectly called forth. But man does not live by 
bread alone ; and when this alone is supplied, almost without 
labor and without stint, he learns to do without many of the 
requisites even of a low stage of civilization, and allows the 
wants of his liigher nature to remain unsatisfied. The want 
of a market, and the consequent surplus of agricultural produce, 
reduce its price so low, that many families find it needless to 
raise more than is wanted for their own consumption. 

Again, the agriculturist has usually but one or two staple 



THE CONCENTRATION OF THE PEOPLE. 101 

articles — perhaps wheat alone, or cotton alone, or hemp alone 
— which he can send to a distance and sell to foreigners. 
These alone are capable of transportation to a distance. But 
his farm cannot usually be worked to advantage unless he has 
a market in his immediate neighborhood, at which he can dis- 
pose of his green crops, market vegetables, butcher's meat, and 
other articles, which must be sold on the spot, or not at all. 
He needs this neighboring market, also, in order that he may 
purchase conveniently, and at the lowest price, his ploughs, 
spades, carts, and other farming tools. Ho^v is he benefited, 
then, though we were to grant that he could exchange his 
wheat for cloth to better advantage by trading with foreigners 
than with his own countrymen, if he should thereby prevent a 
manufacturing market town from springing up within a few 
mUes of his farm, and thus altogether lose the sale of many of 
his products, and be compelled to purchase his tools at a much 
higher price, or be put to great inconvenience in obtaining 
them on any terms ? 

The difficulty is felt, though its true cause is not ascertained ; 
and a general caU is made for improving the means of commu- 
nication, so as to give access to distant markets, when the real 
want is that of a market near home. This want can be satis- 
fied only by bringing the people together, and turning one half 
of them from agricultural to manufactm'ing and mechanic pur- 
suits. The farmer would then find the number of his compet- 
itors diminished, the number of buyers of his produce in- 
creased, and the articles needed for his domestic comfort 
cheapened in price ; because most of them would be manufac- 
tured in his immediate neighborhood, and the expense of trans- 
portation from a great distance would be subtracted from their 
cost. As it is, the State too often bankrupts itself in the gi- 
gantic enterprise of creating a system of railroads and canals, 
so as to gain access to a manufacturing and commercial popu- 
lation on the other side of the Alleghanies, instead of laboring 
to create such a population within its own territory. Indiana 
and Elinois, whose united territory measures about ninety 
thousand square miles, and whose inhabitants, in 1850, num- 
bered nearly 1,840,000, had but one city, Chicago, which con- 
tained over twenty-five thousand inhabitants, and but one 
other, Indianapolis, having over eight thousand. Has it been 
9* 



102 THE ENCOURAGEMENT OF MANUFACTURES : 

a benefit to these States, that the cheapness of the public 
lands has recently borne the tide of emigration onward into 
Iowa and Minnesota, instead of arresting it by the left bank of 
the Mississippi ? In our opinion, the interests of these States, 
and of the emigrants themselves, would be most effectually 
promoted by raising the price of the public lands to a point 
which would really keep them out of the market for twenty 
years to come. 

It is remarked by an intelligent English traveller in the Unit- 
ed States, Professor Johnston, that "the wheat-exporting re- 
gions of North America have been gradually shifting their 
locality, and retiring inland and towards the West." Dm-ing 
the middle and latter part of the last centiu-y, the banks of the 
Hudson and the Delaware, and the flats of the lower St. Law- 
rence, were the granary of America ; the western part of New 
York, and especially the Genesee countiy, succeeded these; 
then came Ohio and Canada West ; and now, a large por- 
tion of the surplus wheat, destined for exportation to Europe, 
is drawn fi-om Michigan, Wisconsin, Iowa, and even Minne- 
sota. The reasons for this change are to be found, partly in 
the migratory disposition of the people, and partly in their im- 
perfect and exhausting processes of agriculture. The influx of 
population into the neighborhood causes the lands to rise so 
rapidly in value, that the deterioration of the soil, under too 
constant and exhausting crops, becomes comparatively of little 
moment. Little attention is therefore paid to manuring or to 
establishing a due rotation of crops. Only the cheapest sys- 
tem of husbandry, and that productive of the quickest returns, 
without regard to the effects produced by such tillage in the 
long run upon the inherent fertility of the ground, can enable 
the farmer to maintain competition in the market with the sup- 
pHes poured in from the newly opened -wheat-regions farther 
west, where the land has been obtained at a nominal price, 
and its virgin powers seem inexhaustible. Tired of a contest 
in which he is subject to a constantly increasing disadvantage, 
the New York farmer at last sells his farm, and himself mi- 
grates westward, secure of obtaining a larger and more fertile 
tract of land at a low cost. But in Iowa or Wisconsin, he 
soon finds that he has only bartered one disadvantage for 
many. The cost of transporting his wheat to market is now 



THE CONCENTRATION OF THE PEOPLE. 103 

SO gi-eat, that the price on the ground hardly pays the expenses 
of cultivation. Labor is dear, and difficult to be had at any 
price, as few will work for wages, when they can obtain farms 
for themselves at a nominal price and on long credit. All the 
evils of a residence on the frontier make themselves felt, and a 
remedy for them is but slowly introduced, as the means of 
transportation are improved, and a few of the simpler me- 
chanic arts begin to be practised in the vicinity, and to afford 
a nucleus for the settlement of a town. The emigrants of a 
later day come forward, but, instead of settling down and com- 
pleting the half-formed village, they push on and begin rival 
settlements farther still in the interior. Then competition be- 
gins anew, and the old contest with lessening prices and in- 
creasing expenses of cultivation must be renewed. The great 
evil in the Old Wdrld, especially among commercial and man- 
ufacturing nations, arises from the undue concentration of the 
people in cities, the improvements in the implements and pro- 
cesses of agriculture requiring every year a smaller and smaller 
number of laborers for the tillage of the fields. Here in Amer- 
ica, the difficulty is of just the opposite character ; the popula- 
tion is thinly dispersed, cities are found only at great distances 
from each other, and the processes of agriculture, as well as of 
most of the arts of life, tend rather to deterioration than im- 
provement. As Professor Johnston remarks, " were the popu- 
lation as fond of their homes, and as stationary in numbers, as 
in the central regions of Northern Europe, — as quiescent in 
character, their labor as small in money value, and everywhere 
as abundant, and their institutions as repressive of exuberant 
energy, — this primitive condition of the agricultural practice 
would be both less felt among themselves, and a matter of less 
observation to foreign countries." 



104 THE DESIRE OF ACCUMULATION 



CHAPTER IX. 

THE INCREASE OF CAPITAL AS AFFECTED BY THE ADVANTAGES 
AND REWARDS WHICH ARE HELD OUT TO THE POSSESSORS OF 
WEALTH. 

The next stimulus of labor and frugality which we have to 
consider is, the prospect that the savings when made, or the 
capital when accumulated, will be attended with a high rate 
of profit, and by a large proportion of physical comfort, social 
consideration, and political influence. 

Necessity is the first and most effective spur to exertion. 
We have wants that imist be satisfied ; we must eat and 
drink, or we perish. But observe that labor or exertion tends 
only to the production of wealth, and that our natural desires 
urge us to consume the product just as soon as it is created. 
For the accumulation of capital, or the growth of national opu- 
lence, we must be willing not only to work, but to save. 
Now, the greatest of all encouragements to frugality is the 
sure prospect that our savings will contribute largely to our 
comfort, will elevate our position in society, and add to the 
estimation in which we are held in the community, and to the 
power which we actually wield. No man will practise self- 
denial for nothing ; take away the chance of using liis accu- 
mulations to advantage, and every one, to use the popular 
phrase, will spend as he goes. It is not enough to prove to the 
laborer, that what he does not spend to-day he will be able to 
spend to-morrow. There is some hazard, at least, that he may 
lose it before the morrow comes ; and if an equal amount of 
enjoyment can be had with it noiv, he will be apt to secure 
that enjoyment as soon as possible. But when he sees that 
the enjoyment, if postponed, may be considerably increased, he 
will be anxious to save ; and this anxiety will be greater in 
proportion to the probable rate of increase, and to the comforts 
and immunities which the use of the accumulation may bring. 
The greater the consideration and influence which attend the 
possession of wealth, the greater will be the temptation to 
amass wealth. 



THE RATE OF PROFIT. 105 

What has been called " the effective desire of accumulation," 
says Mr. Mill, " is of unequal strength, not only according to 
the varieties of individual character, but to the general state of 
society and civilization. Like all other moral attributes, it is 
one in which the human race exhibits great differences, con- 
formably to the diversity of its circumstances and the stage of 
its progress." Again, " in weighing the future against the 
present, the uncertainty of all things future is a leading ele- 
ment ; and that uncertainty is of very different degrees." " All 
circumstances," therefore, as Mr. Rae observes, which increase 
" the probability of the provision we make for futurity being 
enjoyed by om'selves or others, tend to give strength to the ef- 
fective desne of accumulation. Thus, a healthy climate or oc- 
cupation, by increasing the probabUity of life, has a tendency 
to add to this desire. When engaged in safe occupations, and 
living in healthy countries, men are much more apt to be fru- 
gal, than in unhealthy or hazardous occupations, and in cli- 
mates pernicious to human life. Sailors and soldiers are 
prodigals. In the West Indies, New Orleans, the East Indies, 
the expenditure of the inhabitants is profuse. War and pesti- 
lence have always waste and luxury among the evils that fol- 
low in their train." 

Improvidence may also proceed from intellectual as well as 
moral causes. " Individuals and communities of a very low 
state of intelligence," says Mr. Mill, " are always improvident. 
A certain measure of intellectual development seems necessary 
to enable absent things, and especially things future, to act 
with any force on the imagination and will. The effect of 
want of interest in others in diminishing accumulation will be 
admitted, if we consider how much saving at present takes 
place, which has for its object the interest of others rather than 
of ourselves; — the education of children, their advancement 
in life, the future interests of other personal connections, the 
desire of promoting, by the bestowal of money or time, objects 
of public or private usefulness. If mankind generally were in 
the state of mind to which some approach was seen in the de- 
chning period of the Roman empire, — caring nothing for their 
heirs, as well as nothing for their friends, the pubHc, or any 
object which survived them, — they would seldom deny them- 
selves any indulgence for the sake of saving, beyond what was 

/<c3^ „ 



106 



THE DESIRE OF ACCUMULATION : 



necessary for their own future years ; which they would place 
in life annuities, or some other form which would make its ex- 
istence and their lives terminate together." 

The various stages of civilization depend upon, or are the 
consequence of, the varying strength of this desire of accumu- 
lation. The remnants of Indian tribes which are found in 
villages upon the banks of the lower St. Lawrence are sur- 
rounded by circumstances which ought to secure to them all 
the comforts of life, and which would enable others to amass 
wealth. They have abundance of fertile land, aheady cleared 
from the forest, and manure in heaps lies beside their huts. 
Yet such are their apathy and improvidence that they often 
suffer extreme want ; and from the privations thus endured, 
with occasional intemperance, their number is rapidly dimin- 
ishing. Yet their apathy does not arise from aversion to la- 
bor ; for they are industrious enough when the reward of toil 
is immediate. They are successful in hunting and fishing, 
and they work with ardor when employed as boatmen on the 
St. Lawrence. They will even till the ground, if the returns 
from such labor are speedy and large ; they will raise Indian 
corn, which grows and ripens quickly in Canada, and yields 
perhaps a hundred fold. But they have not foresight enough 
to fence then* fields, and hence, when the situation is exposed 
to the incursions of cattle, the culture is abandoned. 

Nearly as low, in respect to foresight and prudence, are the 
emancipated negroes of Hayti and in the British West Indies. 
In a tropical climate, where little clotMng or shelter is needed, 
and where the ground is so fertile that the labor of a few 
weeks will supply sustenance for a year, they are content to 
gain little more than the necessaries of a merely animal exist- 
ence. " From five acres of land in Jamaica," says Mr. Bige- 
low, " a negro will supply almost all his physical wants. I 
have seen growing on a patch of less than two acres, owned 
by a negro, the bread-fruit, bananas, yams, oranges, shaddocks, 
cucumbers, beans, pine-apple, plaintain, and chiramoya, be- 
sides many kinds of shrubbery and fruits of secondary value." 
Yet where nature is thus bountiful, flour is allowed to cost 
from $ 16 to 1 18 a barrel, butter 38 cents a pound, eggs from 
three to five cents apiece, hams 25 cents a pound, and every- 
thing else in proportion. " Four fifths of all the grain con- 



THE RATE OF PROFIT. 107 

sumed in Jamaica is grown in the United States, on fields 
where labor costs more than four times as much, and where 
every kind of provision but iruit is less expensive." The ease 
with which life is supported fosters indolence, feebleness, 
gayety, and insouciance ; and even when the people pretend to 
labor, their work is scarcely worth paying for. " In the sugar- 
mills," we are told, " from twenty to thirty men and women are 
employed to do what five American operatives would do much 
better in the same time, with the aid of such labor-saving 
agencies as would suggest themselves at once to an intelligent 
mind " ; and " this is but one of the thousand ways in which 
labor is squandered on this island." The people might supply 
themselves with all the luxuries of the earth ; but they are con- 
tent to live in a swinish abundance of the grossest necessaries, 
— to be fat and shining, and to sing, chatter, and bask in the 
sun. 

Again, accumulation is rapid when the rate of profits is 
large. If this rate is so high, that the savings of a few years 
may be made to produce as much as the original income from 
which those savings were made, then the prospect of being re- 
leased altogether from the necessity of labor will stimulate the 
habit of frugality to the utmost. The average rate of profits 
in this country is at least twice as large as in Great Britain ; 
for the interest of money here averages over six per cent, while 
the English government funds yield but three per cent, and 
the ordinary rate for short loans often falls below that point. 
But the rate of profits on capital considerably exceeds the rate 
of interest on money ; for he who borrows capital undertakes 
the risk and care of employing it to advantage ; and, of course, 
he who lends his capital, because unwilling to take that risk 
and care on himself, will not expect so high a rate for it as he 
might obtain by using it himself. When a great deal can be 
made by the use of money, a great deal wiU be given for the 
use of it ; but stiU not so much, but that something shall re- 
main to compensate one for the skiU and industry that are 
required to use it to advantage. The average rate of profits in 
this country may be estimated at twelve per cent a year, while 
the corresponding rate in England is but six per cent. I speak 
of the annual rate, because, if the dealer turns over his capital 
twice in a year, he can afford to sell at a profit of only six per 



108 



THE DESIRE OF ACCUMULATION I 



cent, though the annual rate for borrowed money is six per 
cent. 

Assuming, then, the annual rate of profits in the United 
States to be twelve per cent, and that the laborer or dealer uses 
his savings as his own capital, it is certain that, by postponing 
the period of consumption or enjoyment for a little over six 
years, the amount of that enjoyment may be doubled. In 
England, in order to double the enjoyment, he must practise 
abstinence for twelve years. It is obvious, then, that where 
there is the most need of capital, the temptation to accumu- 
late it is strongest, the rate of profits being high, and its growth 
is most rapid. 

In Holland, nearly two centuries ago, after a period of al- 
most unequalled commercial prosperity, the rate of interest feU 
to about two per cent, the rate of profits suffered a correspond- 
ing reduction, and, as a necessary consequence, the growth of 
capital almost wholly ceased. Holland, in point of commer- 
cial and manufacturing enterprise, has been in a, stationary, if 
not a declining state, for about two centuries. The springs of 
industry are not relaxed, for the people are still sober and labo- 
rious ; but they lack the energy and the thirst for gain, which 
caused them, in the seventeenth century, to dot the surface of 
the globe aU over with Dutch colonies. Few will practise ab- 
stinence and try to amass wealth, when the rate of profit is 
but little over four per cent. 

The rate of interest in England, in Henry VIII.'s time, was 
limited to ten per cent, which implies that it had been higher. 
Under James I. it was reduced to eight, and after the Restora- 
tion of the Stuarts, to six per cent. Forty years afterwards, it 
was again reduced to five, and a continuance of the same 
causes, as we have seen, has now brought it down to three per 
cent. But for the enlarged intercourse with foreign lands, 
which has tempted English capitalists of late years to embark 
their funds in enterprises abroad, in Mexican mines, in Conti- 
nental and American railjoads, in Austrian and Russian funds, 
and in United States stocks, it is probable that the interest of 
money and the profits of stock would, ere now, have sunk to 
that low point at which the desire to accumulate ceases alto- 
gether. 

True, "there would be adequate motives for a certain 



THE RATE OF PROFIT. 109 

amount of saving," as Mr. Mill remarks, " even if capital 
yielded no profit. There would be an inducement to lay by 
in good times a provision for bad ; to reserve something for 
sickness and infirmity, or as a means of leisure and indepen- 
dence in the latter part of life, or a help to children in the out- 
set of it. Savings, however, which have only these ends in 
view, have not much tendency to increase the amount of capi- 
tal aheady in existence. These motives only prompt each per- 
son to save at one period of life what he purposes to consume 
at another, or what will be consumed by his children before 
they can completely provide for themselves." " There are al- 
ways some persons in whom the effective desire of accumula- 
tion is above the average, and to whom less than the ordinary 
minimum rate of profit is a sufficient inducement to save ; but 
these merely step into the place of others whose taste for ex- 
pense and indulgence is beyond the average, and who, instead 
of saving, perhaps even dissipate what they have received." 

The hope of elevating one's condition in the world tends 
more effectually to increase the national wealth in proportion 
as it affects a larger class of the people. In most civilized 
countries, the bulk of the population are poor, their daily 
wages hardly sufficing to buy their daily bread. Their sav- 
ings, if it is possible for them to make any, must be in very 
small sums ; and the inducement for them to be frugal must 
depend on the possibility of immediately investing such smaU 
sums to advantage. One of the great improvements of mod- 
ern civilization consists in the means afforded, the machinery 
contrived, for collecting these driblets of wealth, and bringing 
them together into large reservoirs, whence they issue in abun- 
dant streams, giving efficiency and fertihty to labor throughout 
the land. The water which falls in drops upon the desert, 
sinks through the sand, and leaves the ground arid and barren 
as before ; but when collected in great tanks and cisterns, it 
turns a given portion of that desert into a garden. A centmy 
or two ago, if the laboring part of the population made any 
savings, they were in the form of fittle hoards of silver or gold, 
hid in an old stocking, or buried in the garden. But because 
the money thus stored was unproductive, and yielded no inter- 
est, and because it was always at hand when the owner was 
for a moment tempted to some indulgence and consequent ex- 
10 



110 



THE DESIRE OF ACCUMULATION 



pense, the number and amount of such hoards were always 
small. Now, through the multiplication of the branches of 
retail trade, and the lesser mechanic arts, and through joint- 
stock corporations and savings' banks, the first half-eagle which 
the laboring man or woman saves from the month's wages is 
profitably invested, and, by the end of the year, is increased 
by the twentieth part of itself. When this saving has reached 
a very moderate amount, it can be made to accumulate at 
compound interest, and thus to double itself in twelve years. 
In many cases, it soon comes to be used by the owner himself 
as capital ; that is, it is invested in the purchase of tools or 
machinery, or a small stock in trade ; and it may then accu- 
mulate at the rate of ten or twelve per cent a year, — that is, 
it may double itself every six or seven years. The result is, 
that he who began life as a common laborer, often drives 
about in his own carriage before its close. 

In almost any other part of the world than New England, 
I should be afraid to give this sketch as an illustration of the 
manner in which the wealth or available capital of a nation 
is increased. But I presume it is a safe assertion, that at least 
one half of those who are usually called wealthy men, in Bos- 
ton and its neighborhood, have obtained their wealth very 
nearly in the manner, or through the process, just described. 
This leads us to perceive that the aggregate of the small sav- 
ings made by the bulk of the population, who have very small 
means, may constitute, and in this country actually does con- 
stitute, a larger annual addition to the whole amount of na- 
tional capital, than the sum of the much larger savings made 
by the few who are usually considered as capitalists. 

Mr. Farr stated, in 1852, in his evidence before a commis- 
sion of Parliament, that, according to an estimate based upon 
the retm-ns under the Income Tax, there are not more than 
236,000 persons in Great Britain whose clear annual incomes 
exceed £ 200 each. This is the number, therefore, of those 
who may be considered as persons of wealth. Their aggre- , 
gate income amounts to X 174,810,000, being an average of 
about X 740 to each. If w^e suppose that one half of these 
persons make savings to the extent of one tenth of their in- 
come, — a supposition which is a very liberal one,' — the accu- 
mulations of the rich will amount to X 8,740,500, or about 



THE RATE OF PROFIT. Ill 

$43,700,000. That this may not appear an under-estimate, 
it should be remembered, that the customs of society in Eng- 
land require the style and expensiveness of living to come 
much nearer to the individual's whole income than is usual in 
this country, so that most of the nobility and the landed gen- 
try, who have the largest incomes, do not make any savings at 
all, and many even run in debt, or encroach upon their capital. 
A nobleman who inherits an estate of X 20,000 a year, inher- 
its also a style of living which is costly enough to consume it. 
In the United States, on the other hand, a man usually begins 
poor, and therefore with frugal habits, and consequently hardly 
knows what to do with the income of a large property when 
he has acquired it. He has no ancestral castle to maintain in 
due state, and no county to contest at each succeeding elec- 
tion. Nay, the custom of the country, the force of public opin- 
ion, is such, that he cannot make his personal expenditure 
equal to his income, even if he wished. He must not keep a 
carriage and four, nor have a footman to stand behind his 
more modest equipage, nor clothe his servants in livery, nor 
adopt many other of the badges by which some persons try to 
convince the world that they are people of consequence. We 
are accused of being fond of titles, it is true ; but the epithets 
of Major, Colonel, and Honorable cost nothing but civility, and 
so do not help a man to spend his fortune. We do not tol- 
erate gold lace, nor cocked hats, nor tall footmen with gold- 
headed canes. 

How great is the possible addition to the national capital 
from the savings of the comparatively poor, — of persons who 
live either upon wages, or upon incomes so small that they do 
not exceed the average wages of expert artisans ? Great Brit- 
ain and the United States are nearly equal in point of popu- 
lation ; and the census (1841) of the former country shows 
that two and a half millions of male adults, or one half of the 
whole nation, are laborers or operatives who subsist entirely 
upon wages. We will suppose that only one half of these 
make any savings, and that the savings of each frugal and in- 
dustrious laborer might amount to forty dollars a year, — a 
sum which the generality of English laborers certainly are not 
able to save, but which most prudent and laborious male 
adults in New England might save, since many family domes- 



112 THE DESIRE OF ACCUMULATION. 

tics and manufacturing operatives here actually lay aside a 
larger amount than this every year. One and a quarter mil- 
lions of savings at forty dollars each, give an aggregate of fifty 
millions of dollars, as the sum which might be added each year 
to the national capital by the savings of the poor. 

Thus far, we have only shown what might he accomplished ; 
and the result throws a strong light on our general proposition, 
that, while wealth is created by labor, capital accumulates by 
the exercise of frugality. But there are many indications — 
here in New England, at least — that the rapid growth of cap- 
ital is actually to be attributed to the industrious and frugal 
habits, — I will not say, of the poor, for, strictly speaking, we 
have no poor except the vicious, and the recent immigrants, — 
but of that part of our population who are engaged chiefly in 
manual labor. This class alone deposit money in our Sav- 
ings' Banks, the accumulations in which, in Massachusetts 
alone, where our population is less than a million, already ex- 
ceed $ 23,000,000. In England, the deposits in the Savings' 
Banks exceed $ 150,000,000, though no one person can de- 
posit more than $ 750. It must be remembered also, that the 
reservoir always remains full to this extent, though a stream is 
always flowing out of it, several millions being annually with- 
drawn, — a portion, indeed, for unproductive consumption, but 
a larger portion for investment in other forms, in stocks, or cap- 
ital for retail trade, or in machinery and tools. Considering 
that the class in our community who make use of the Savings' 
Banks is not only the poorest, but the smallest, and that a 
much larger class, composed of small farmers, tradesmen, and 
mechanics, find a more profitable use for their savings by im- 
mediately enlarging their own capital with them, we may well 
regard the proposition as established, that the national capital 
grows more by the aggregate of the small savings of the bulk 
of the people, including the poorer classes, than by the great 
gains of the rich. 



ADVANTAGES OF THK POSSESSION OF WEALTH. 113 



CHAPTER X. 

THE INCREASE OF CAPITAL AS AFFECTED BY THE POLITICAL 
AND SOCIAL ADVANTAGES ATTENDING THE POSSESSION OF 
WEALTH. 

Having shown the importance of small savings effected by 
the bulk of the people, we come to the following inquiry : — 
Under what circumstances are the middling and lower classes 
able to save, and by what means is their inclination to frugal- 
ity most effectually stimulated ? I answer, that the most pow- 
erful means to this end is what may be called the mobility of 
society, or the ease and frequency with which the members of 
it change their respective social positions. The worst of all 
forms of civil polity is that which binds a man for ever to that 
condition of life in which he was born, be it of high or low de- 
gree, however he may have merited removal from it by his 
character, acquisitions, and behavior. Fixity of ranks and 
classes, or the existence of immunities and distinctions which 
money and talent can neither purchase nor remove, is a bar to 
the accumulation of wealth, — a bar which it is difficult to 
overleap just in proportion to the importance and extent of 
those unpurchasable privileges. If they are numerous and of 
great moment, if they cover the whole ground both of political 
influence and social consideration, what inducement is there 
for any one who is not born to the possession of them, either 
to labor or to save further than is required for the necessities 
of the present hour, — the point at which, be it remembered, 
the accumulation of capital begins ? And what inducement to 
accumulate is there for one who is born to the possession of 
them, since he already enjoys more than wealth can buy, and 
cannot forfeit this enjoyment even if he should lose his wealth ? 
The great improvement in the industrial organization of soci- 
ety in modern times, whereby the increase of wealth in all 
civilized nations has been made so rapid and so great, has 
been the successive breaking down and removal of these fixed 
and arbitrary barriers and divisions, so as to leave the whole 
10* 



114 POLITICAL AND SOCIAL ADVANTAGES 

field of promotion open to the career of skill, industry, and 
economy. A brief notice of a few points in the politico-eco- 
nomical history of different nations will illustrate this state- 
ment. 

" Both in ancient Egypt and Hindostan," and to a great 
extent still in the latter of these two countries, "the whole 
body of the people was divided into different castes or tribes, 
each of which was confined, from father to son, to a particular 
employment or class of employments. The son of a priest 
was necessarily a priest ; the son of a soldier, a soldier ; the 
son of a laborer, a laborer ; the son of a weaver, a weaver, &c. 
In both countries, the caste of the priests held the highest rank, 
and that of the soldier, the next ; and in both countries, the 
caste of the farmers and laborers was superior to the castes of 
the merchants and the manufacturers." Adam Smith adduces 
these facts to explain why agriculture flourished in those re- 
gions far more than any other employment. He might with 
greater propriety have cited them to explain the peculiar, im- 
movable, statue-like character of Hindoo and Egyptian civil- 
ization. The massive granite sphinxes, half covered by the 
sands of the desert among which they have rested for rnore 
than three thousand years, with their enigmatical and almost 
superhuman expression of mingled sweetness and severity, fit 
emblems of mystery, unchangeableness, and everlasting repose, 
aptly typify the character and the institutions of the people 
who chiselled them. The bodies of this people are even now 
drawn from the tombs in which they have lain for thirty cen- 
turies, perfect in every limb and lineament, as if they resisted 
change even after death. And such was their condition dur- 
ing life ; the idea of movement, alteration, or progress seems 
never to have occurred to them. Institutions merely political, 
the will of a monarch or the decrees of a senate, could not re- 
tain society in this immovable state for ages. The power of 
religion was brought in to render sacred the fetters which 
bound it, and to take away from the minds of the common 
people any desire to rupture them. How much influence su- 
perstition had in building up these divisions of castes, and pre- 
serving them from violation or decay, may be conjectured from 
the fact, that the priests always formed the highest caste, and 
therefore profited most by this peculiar institution. Civiliza- 



OF THE POSSESSION OF WEALTH. 115 

tion thus embalmed and immured was safe both from progress 
or decay by internal causes. It might have remained to this 
day j ust as it was in the time of the Pharaohs, if invasion from 
abroad had not brought it to a violent death, — if the Romans 
and the Arabs had not successively made Egypt a prey to 
their thirst for foreign dominion. 

Though the barriers of caste prevented the people, as indi- 
viduals, from making any progress in wealth, their peculiar 
polity enabled the government to undertake and execute works 
which shame the magnificence and expensiveness of modern 
productions. What we now esteem the wonders of Egypt, 
her obelisks and pyramids, her excavations and temples, were 
strictly public works, performed at royal or priestly command 
by the multitude, who worked without pay, because labor was 
the function of their caste, and the part which they believed 
the gods designed to be their vocation. Wages and profits 
were words which in their ears had no meaning ; all their time, 
all their labor, was due to the state, which was represented by 
the monarch and the priests. A portion of their time or of the 
products of their labor was granted back to them, which might 
or might not suffice for their subsistence. If savings were ever 
made, it was only with the intention of obtaining enlarged en- 
joyment from them at a future day, never for the purpose of 
aiding the individual's subsequent labors with a reserved fund, 
or of purchasing an easier or more elevated position with them. 
In the station of fife in which each person was born, in that he 
was content to die. Of course, there was no accumulation of 
private wealth. Even the land belonged to the sovereign ; all 
that was due to any person was a Kvelihood in the profession 
or caste to which he belonged, with that measm'e and kind of 
employment and comfort, of luxury or privation, which was 
allotted to every other member of the same caste. Immobility 
was the great characteristic of Hindoo and Egyptian civiliza- 
tion. 

The freer spirit and quicker intellect of the Greeks, the pride 
and military ambition of the Romans, prevented these nations 
from sinking into apathy, or stagnating in castes. In the fierce 
democracy of Athens, the subtle politician and fluent de- 
claimer often elbowed his way into the favor of his fellow- 
citizens, and consequently into offices of honor and profit. At 



116 POLITICAL AND SOCIAL ADVANTAGES 

Rome, a man of plebeian origin not unfrequently vanquished 
the pride of the patricians, and obtained the consulship, or the 
command of the armies of the republic. There was freedom, 
there was Hfe, in a society thus constituted. There was a path 
open to effort, and a motive for the exercise of industry and 
self-denial. In the turbulent times which preceded and ac- 
companied the fall of the republic, individuals often amassed 
large fortunes, and with these purchased the honors which 
they had not political sagacity, or mihtary skill and corn-age, 
enough to obtain by more legitimate means. One of the tri- 
umvirs who shared the empire of the world with Antony and 
Octavius, owed his political power solely to his wealth. Both 
these nations might have made far greater progress in opulence, 
if the institution of slavery, itself a caste, had not existed 
among them, and if the state and the affairs of government 
had not monopolized ambition and effort to so great an extent, 
that private enterprise, and the undertakings of individuals 
who did not profess to look to the commonwealth for their re- 
ward, were discouraged or held in light esteem. Both at Ath- 
ens and at Rome, the republic was everything and the indi- 
vidual was notliing ; and, as a consequence, in the city proper, 
society was composed of two great castes, — the citizens who 
were devoted to pubHc affau's, and the slaves. The wealth of 
Rome was the wealth of the robber's den, obtained by plunder- 
ing the rest of mankind. Even the populace of this great city 
were supported by gratuitous distributions of the corn which 
was levied as a tribute on the industry of the Sicilians and the 
Africans ; and its patricians amassed their enormous fortunes 
from the plunder of the provinces which they had been ap- 
pointed to govern. 

With regard to slavery among the ancients, it has been 
acutely remarked by Sismondi, that because it was only an 
accident of the right of war, and not an industrial organiza- 
tion, it did not discredit labor in general. The slave was not 
a mere article of property, or a means, through his enforced 
toil, of increasing his master's property. He was rather a 
token of his owner's, or of the nation's, prowess in war. The 
possession of numerous slaves was more a matter of pride, a 
means of ostentation and magnificence, than a mode of invest- 
ing capital with a view to profitable retm'ns. Few of the 



OF THE POSSESSION OP WEALTH. 117 

slaves were distinguished by color, or any other physical pecu- 
liarity, which might serve as an ineffaceable mark of bondage 
or degradation. Hence, when manumitted, they at once took 
rank in society, and their children often rose to high honors in 
the state. As slaves, indeed, they were often put to servile 
and economical uses ; but they were never treated as mere ma- 
chines for the production of wealth. They did not perform all 
the labor, and therefore they did not discredit labor. They 
were a caste, and so did not accumulate property, either for 
themselves or others ; but they were not a degraded caste ; 
they were not considered vile, as were the Pariahs in India, or 
as African slaves are, in modern times. 

" The unhealthy climate of many portions of Italy," says M. 
de la MaUe, " made it necessary that the ground should be cul- 
tivated by freemen who were robust and accUmated, which the 
slaves seldom were ; the latter, also, increased in number very 
slowly, as their iU health, caused by insufficient nourishment, 
long confinement, the want of air, and bad treatment, made 
them more susceptible to the impressions of climate." 

The testimony of Varro, a contemporary of Caesar and Ci- 
cero, is positive, and this fact ought to change the ordinary no- 
tions as to the kind of agriculture pursued in Italy at a time 
when Rome was the mistress of the world, and the number of 
slaves had considerably increased. " All the farms," says Var- 
ro, " are cultivated by freemen, or by slaves, or by a mixture of 
these two classes. Freemen till the ground either by them- 
selves, with the aid of their children, as the small proprietors 
do, or by free laborers hired by the day, in the busy season, 
when they are making hay or collecting the grapes, or, finally, 
by those who are working out the payment of a debt. I speak 
of aU farms in general, as it is more profitable to cultivate the 
unhealthy districts with hired laborers than with slaves, and 
even in the healthy localities, the great labors of the husband- 
men, such as the collection of the fruits, the harvest, and the 
vintage, ought to be confided to free hu-ed workmen, or merce- 
naries." Those who belonged to a caste, as the slaves did, 
and who, consequently, were not stimulated to labor by the 
hope of rising or the fear of falling in the world, could not be 
trusted with the most important work, even on a farm. Mod- 
ern experience fully confirms this result, as no land of cultiva- 



118 POLITICAL AND SOCIAL ADVANTAGES 

tion is found to succeed, if conducted by slaves, except that of 
tropical products, where the laborers can be employed in 
gangs. 

" Finally," continues M. de la Malle, " even in the time of 
Trajan, it appears that in the northern part of Italy, in the 
neighborhood of Lake Como at least, slaves were not em- 
ployed in tilling the ground." Pliny the Younger says, " I 
never use slaves in the cultivation of my farms, nor does any 
one in the vicinity. This class of persons were mainly re- 
served for household labors in the city ; and one can easily be- 
lieve that the Gauls, the Germans, the Sjnrians, the inhabitants 
of Asia and Africa, when brought as slaves to Italy, would 
have fallen quickly under the influence of a climate so different 
from their own, of a pestilential air, and of the exhaustion 
caused by hard labor and insufficient nourishment." 

" In fact, in a country and at a time when the legal rate of 
interest was fixed at one or one and a half per cent a year, 
and when the citizens were prohibited from engaging in trade, 
manufactures, or the mechanic arts, agriculture was the only 
means of keeping up or making a moderate addition to one's 
fortune. Landed property was much divided, and the small- 
ness of the farms allowed them to be cultivated by the propri- 
etor's own hands and those of his family." There were really 
but three classes in the community, separated by lines of divis- 
ion so permanent as almost to form them into castes ; these 
were the slaves, the small agriculturists, and those who were 
either devoted to the service of the state, or who depended on 
it for subsistence. At least, this was the condition of Rome 
under the republic, when the severe virtues of simplicity, com'- 
age, and frugality were in request. Wealth then was not a 
passport to honor, and wealth accordingly was not accumu- 
lated. Cincinnatus was summoned from the plough to take 
the helm of state. 

The empire wholly changed the face of affairs ; but as this 
rapidly degenerated into an Oriental despotism, in which the 
insecurity of fife and property was a sufficient bar to the accu- 
mulation of the latter, we need not dwell upon the causes of 
its decHne. 

After the fall of the Roman empire in the West, and the es- 
tablishment of various tribes of barbarian conquerors upon its 



OF THE POSSESSION OF WEALTH. 119 

ruins, a great step was taken in social economy by the virtual 
emancipation of one large class in the community from the 
fetters of caste. I refer to the inhabitants of the free cities or 
towns, the foundation of which, in Germany, France, and It- 
aly, was the first step towards the creation of the social polity 
of modern times. Their population, indeed, says Adam 
Smith, " consisted of a very different order of people from the 
first inhabitants of the ancient republics of Greece and Italy. 
They were chiefly tradesmen and mechanics, who seem in 
those days to have been of servile, or very nearly of servUe, con- 
dition. They seem, indeed, to have been a very poor, mean 
set of people, who used to travel about with their goods from 
place to place, and from fair to fair, like the hawkers and ped- 
dlers of modern times." They were liable, while thus travelling 
about, to great exactions ; they were either plundered without 
mercy by the arrogant and rapacious, or they paid heavy taxes 
and tolls as a price of protection. " Sometimes the king, some- 
times a great lord, would grant to particular traders, especially 
to such as lived on their own lands, a general exemption from 
such taxes ; and then, though in other respects nearly servile 
in their condition, they were called free trader s.^^ They were 
allowed to give away their own daughters in marriage, their 
children were permitted to inherit their property, they were al- 
lowed to dispose of their effects by will ; in short, they were 
released from the most oppressive of the feudal burdens, to 
which, as of the lower class in society, they had hitherto been 
subject. " They were generally at the same time erected into 
a commonalty, or corporation, with the privilege of having niag- 
istrates and a town-council of their own, of making by-laws for 
their own government, of building walls for their defence, and 
of reducing all their inhabitants to military discipline by oblig- 
ing them to watch and ward." The nobles despised the burgh- 
ers or citizens, whom they regarded as a parcel of emancipated 
slaves, devoted to base mechanic arts, and whose wealth ex- 
cited their envy and indignation. The king, on the other 
hand, favored them, as a counterbalance to the power of the no- 
bility, whom they hated and feared; and the weakest mon- 
archs, consequently, were most liberal in their grants of privi- 
leges to the cities and towns. Thus the prosperous cities of 
France and the Low Countries, the famous Hanse towns of 




120 POLITICAL AND SOCIAL ADVANTAGES 

Germany, and the flourishing commercial repubUcs of Italy 
and Switzerland, came into being. 

In the country, the distinctions of caste and the consequent 
limitations of employment still existed. The great barons 
lived remotely from each other, each on his own estate, sur- 
rounded by his retainers and serfs, whose only occupations 
were war and agriculture, and who had no hope of improving 
their condition. Exposed to every sort of violence, they natu- 
rally contented themselves with a bare subsistence ; for to ac- 
cumulate more would only excite the rapacity of their oppres- 
sors. If one of them did make some small savings, he hoarded 
them with care and secrecy, tiU he could find some opportunity 
of running away to a town, where, if he could conceal himself 
for a year, he was free for ever. Thus a city often grew up to 
great wealth and splendor, while the country in its neighbor- 
hood was in poverty and wretchedness. The great lords them- 
selves could obtain the articles of luxury which they desired 
only by bartering raw agricultural produce for them, at a great 
disadvantage, with the inhabitants of the towns. As the 
wealth and military strength of these municipal corporations 
increased, they could no longer be taxed but by their own con- 
sent ; hence they were empowered to send delegates to parlia- 
ment or the general assembly of the states of the kingdoiu, 
where, in connection with the clergy and the nobles, they 
granted extraordinary aids to the king, and had a potential 
voice in managing the affairs of the nation. 

These cities were not merely repubhcan ; they were essen- 
tially democratic, in their origin, their institutions, their social 
relations, and their tendencies ; and my point is to show, that 
this democratic character was the first cause of their rapid 
growth in opulence. Being originally servile, or nearly servile, 
in condition, the inhabitants had no distinctions of rank to 
begin with ; their natural enemies were the nobles, from whose 
oppressive sway they were but recently emancipated. Trade 
and manufactures, being their only occupations, were necessa- 
rily held in high esteem among them ; and he enjoyed their 
highest confidence and respect who had been most successful 
in these pursuits. A common interest and common perils 
bound them very firmly to each other ; and the direction of 
affairs in their Httle state was naturally intrusted to those 



OF THE POSSESSION OF WEALTH. 121 

whose skill, prudence, industry, and economy had been already 
rewarded with the largest accumulations of wealth. No one 
was ashamed of his craft ; no one had anything to be proud 
of but his riches. A brewer and a tanner, a weaver and a 
goldsmith, sat side by side in the town councils, or led the cit- 
izens to the defence of the walls, and even conducted them in 
armies to the field, where they often defeated the chivalry of 
France and Germany, and sometimes triumphed over their 
own monarchs. Van Artevelde of Ghent was a brewer ; the 
Medici of Florence, though popes and kings were reckoned 
among their posterity, were at first only successful merchants. 
"Wealth being thus the only passport to distinction, and all the 
avenues to it being in high repute, its possession was eagerly 
coveted, and the virtues of industry and frugality were prac- 
tised to the farthest extent With the growth and spread of 
opulence, and the calling forth of talent from the whole com- 
munity through the absence of artificial distinctions, the rise 
and progress of literature and the fine arts were necessarily 
associated. Poetry, painting, sculpture, and architecture had 
their origin, in modern times, in the commercial repubfics of 
Pisa and Florence, and the free cities of Flanders. 

Wealth passed freely from hand to hand. Feudalism was 
barred out by the city walls ; and the father's property, instead 
of being kept together for the aggrandizement of the family in 
the person of the oldest son, was distributed equally among 
the children. If one or more of these were prodigal, careless, 
or indolent, they sank to that level whence the thrift of the fa- 
ther had raised them, and their places were filled by the more 
capable and industrious. These alternations of fortune, rapid 
and frequent, kept up in the community a thirst for gain, and 
kept down discontent and civil commotions. An aristocracy 
of wealth has this at least to recommend it, if whoUy discon- 
nected with an aristocracy of birth, — that by its fluctuations 
it rather encourages effort than represses it. While society 
stagnated among the feudal nobility and at the courts of feu- 
dal monarchs, it was galvanized into an almost unnatural ac- 
tivity within the precincts of the little civic republics of Italy, 
Germany, and the Low Countries. The proud nobles were 
reduced to seek aid of the fat and wealthy burghers, the pains- 
taking artisans, whom they affected to despise. They obtained 
11 



122 



POLITICAL AND SOCIAL ADVANTAGES 



loans from them, for which they gave their lands in pawn, and 
even sold to them outright their castles and hereditary estates. 
Ennobled by the possession of these, the ambition of the citi- 
zens grew by what it fed on, and not infrequently, as in the 
case of the Medici at Florence, they became the ancestors of a 
line of kings. 

This sketch of the causes affecting the growth of opulence 
in ancient and modern times is introduced principally for 
the purpose of illustrating the most remarkable difference in 
the social condition of Great Britain and the United States. 
The most striking thing in the aspect of society here is the 
constant strain of the faculties, in all classes, in the pursuit of 
wealth, — the restlessness, the feverish anxiety to get on, which 
English writers, at least, are apt to regard only as " the disa- 
greeable symptoms of one of the phases of industrial progress." 
In whatever light it ought to be viewed, they are certainly 
mistaken in considering it as a consequence of the recent for- 
mation of our institutions, and the recent establishment of our 
people on the shores of a new world, — in attributing it to our 
favorable position, with an abundance of fertile land, and with 
sources of opulence as yet fresh and unexhausted. "Were such 
causes adequate to produce this particular effect, we should 
find society exhibiting the same characteristics wherever it was 
similarly situated, — in British America, for instance, in Brit- 
ish Australia, and over a great portion of the South American 
continent. But it is not so ; and we must therefore look for 
an explanation of the phenomenon to some cause which is pe- 
culiar to our own social state, — to some stimulus acting upon 
what political economists call " the effective desire of accumu- 
lation," which has full scope to operate here, while it is 
repressed or much restricted in all other nations, — even in 
England, where the character of the population in other re- 
spects is so similar to our own. 

I find such a peculiar operating cause in the fact, that every 
individual here has the power to make savings, if he will, and 
almost as large as he will, — and has the certainty that the 
savings when made, the wealth when accumulated, will imme- 
diately operate, in proportion to its amount, to raise the frugal 
person's position in life, — to give him, in fact, the only dis- 
tinction that is recognized among us. Neither theoretically 



OF THE POSSESSION OF WEALTH. 123 

nor practically, in this country, is there any obstacle to any in-" 
dividual's becoming rich, if he will, and almost to any amount 
that he will ; — no obstacle, I say, but what arises from the 
dispensations of Providence, from the unequal distribution of 
health, strength, and the faculties of mind. In other words, 
there are no obstacles but natural and inevitable ones ; society 
interposes none, and none exist which society could remove. 
And ours is the only community on earth of which this can 
be said. Here there are no castes, and not even an approach 
to a division of society by castes. Our whole population is in 
that state which I have attempted to describe as the condition 
of the inhabitants of a free town in the Middle Ages. The 
property which is rapidly gained is often quite as rapidly 
spent, for the sake of that consideration and influence which 
the reputation of riches alone can give. Hence, wealth circu- 
lates among us almost as rapidly as the money which is its 
representative. A great fortune springs up, like the prophet's 
gourd, in a night, and is dissipated by some unforeseen acci- 
dent on the morrow. Every one is made restless and anxious 
by this exposure to sudden change ; but one great good comes 
of it, that it keeps down permanent discontent, and stifles the 
jealousy that is usually nursed by social differences and ine- 
qualities of fortune. How is it possible, indeed, that the poor 
should be arrayed in hostility against the rich, when — to 
adopt a former illustration — the son of an Irish coachman be- 
comes the governor of a State, and the grandson of a million- 
naire dies a pauper? The consequence of the whole is an 
unceasing energy and activity in the pursuit of wealth, which 
accomplish greater wonders than all the modern inventions of 
science, which actually generate enthusiasm of character, and 
are regarded by foreigners with surprise and distrust, as the 
tokens of some constitutional disease in the body politic. Even 
the tish immigrant here soon loses his careless, lazy, and tur- 
bulent disposition, and becomes as sober, prudent, industrious, 
and frugal as his neighbors. Nearly all the enormous fortunes 
that have been gathered in this country are the growth of a 
single lifetime, and therefore, even if they were more evenly 
distributed than they now are at the death of their founders, 
there would not be a smaller number of them in the succeed- 
ing generation. Consequently, they are regarded as the prizes 



124 



POLITICAL AND SOCIAL ADVANTAGES 



of industry, economy, and enterprise ; and the sight of them 
stimulates and sustains exertion, instead of chilling and re- 
pressing it, which is the effect produced by the fixedness in 
certain families of vast hereditary estates. 

The aspect of society in England in this respect I will not 
say is the direct contrary of what it is here, for with regard to 
a very large and influential class, it is just the same. The 
middle class — what on the Continent would be called the 
bourgeoisie, the merchants, the manufacturers, the small trades- 
men, the master mechanics — are about as busy as we are 
here in the pursuit of wealth ; and their numbers and influence 
in the state gave occasion to Napoleon's sarcasm, that the 
English were a nation of shopkeepers. But the parallel be- 
tween their condition and that of the free towns in the Middle 
Ages may be carried much farther ; outside of the city ivalls 
there are the nobles and the serfs. The effect of the activity of 
the commercial class upon the eye of the philosophical ob- 
server is qualified by the comparative repose — the stagnation, 
one can almost say — of the laboring poor and of the nobility 
and landed gentry. These two classes, the top and the bottom 
of English society, are true castes, for nothing short of a mir- 
acle can elevate or depress one who is born a member of 
either. The true movement, the life, of the community in 
Great Britain is among those who are engaged in commerce 
and manufactures ; here are alternations of fortune, not so 
frequent, perhaps, as in this country, but as sudden and as 
great. An Arkwright begins life as a barber, and ends it as a 
millionnaire ; a Peel gives his days and his nights to cotton- 
spinning, and his son becomes prime minister of England. 
But outside of this class there is stagnation and death. One 
half of the whole population is composed of laborers who sub- 
sist entirely upon wages, who cannot make savings if they 
would, for their whole earnings barely suffice to keep soul and 
body together. Hopeless of rising, encouraged by no examples, 
among those who were born his equals, of elevation to a higher 
grade, the laborer has no ambition, no thought even, of chang- 
ing his position in life. His condition is best described in the 
strong language of McCulloch, when he speaks of " the irre- 
trievable helotism of the worldng classes of England." And 
the upper classes, the nobility and the gentry, occupy a sphere 



OF THE POSSESSION OF WEALTH. 125 

which is equally immovable. With estates locked up by en- 
tails and marriage settlements, so that they cannot squander 
them, with an inherited scale of expenditure proportionate to 
their rank and fortune, so that they cannot make savings from 
income, and with a measm'e of political influence and social 
consideration secured to them by the long-estabUshed habits 
and opinions of their countrymen, they form a caste almost as 
fixed as that of the Bramins in India. 

The difference in the aspect of society and the social condi- 
tion of the people between Great Britain and the United 
States seems to me one of the most pregnant and instructive 
facts which the political economist has to consider; for it 
shows the superiority of moral over physical causes in the 
growth of national opulence, and that the hope of rising in the 
world is the chief motive for the accumulation of capital. 
Great inequality in the distribution of wealth may operate 
either as a check or a spur to industry and frugality ; it is not, 
then, in itself, to be deprecated. On the contrary, a perfectly 
uniform partition of the goods of this world, if it were possible, 
which it is not, would create universal torpor. Take away the 
fear of poverty and the hope of rising in the world, and no one 
would exert himself but for his own amusement. Add the^ 
power of a despot, to make such exertion compulsory, and we 
should have exactly that state of things which existed in Egypt 
and India, when the institution of castes as yet was unim- 
paired. If the whole population formed but one caste, from 
which they could neither sink nor rise by any fault or merit of 
their own, they would be no more inclined to labor than if 
they were divided into several castes. It is the fixedness, and 
not the inequality, of fortunes which is to be dreaded ; it is the 
retention of them in the same families throughout many gen- 
erations, which chills exertion and unnerves the right arm of toU. 
Wherever there is motion, there is life. Property cannot be 
rendered immovable, except by the effect of human institutions 
which are designed to counteract the laws of nature. In this 
instance, surely, if in no other, the pohtical economist has a 
right to cry, Laissez faire ! let alone ! and do not attempt to 
amend the ways of Providence ! We do try to amend them 
when we attempt to enforce, or to render permanent, either 
equahty or inequahty. Laws of primogeniture and entail, the 
11* 



126 POLITICAL AND SOCIAL ADVANTAGES 

object of which is to insure to certain families the possession 
of their wealth for ever, are not a whit more unnatural and un- 
just in their operation, than would be the schemes of the phil- 
anthropic reformers, as they call themselves, who would fain 
reconstruct society on the basis of making the distribution of 
all property equal and unchangeable. 

" The laws and conditions of the production of wealth," as 
Mr. Mill remarks, " partake of the character of physical truths. 
There is nothing optional or arbitrary in them. Whatever 
manldnd produce must be produced in the modes and under 
the conditions imposed by the constitution of external things, 
and by the inherent properties of their own bodily and mental 
structure. Whether they like it or not, their production wiU 
be Hmited by the amount of their previous accumulation, and, 
that being given, it will be proportional to their energy, their 
skill, the perfection of their machinery, and their judicious use 
of the advantages of combined labor. Whether they like it or 
not, the unproductive expenditure of individuals will, to an 
equal extent, tend to impoverish the community, and only 
their productive expenditure will enrich it. The opinions or 
the wishes which may exist on these different matters, do not 
control the things themselves. We cannot indeed foresee to 
what extent the modes of production may be altered, or its 
powers increased, by future extensions of our knowledge of 
the laws of nature, suggesting new processes of industry of 
which we have at present no conception. But howsoever we 
may succeed in making for ourselves more space within the 
limits set by the constitution of things, these limits exist; 
there are ultimate laws which we did not make, which we 
cannot alter, and to which we can only conform." 

Among such ultimate laws is the tendency to an unequal 
distribution of the wealth that is created by human labor. A 
law of natural justice, which is recognized by savages quite as 
much as by civilized nations, assigns the ownership of a useful 
article to him by whose skill and industry that article was cre- 
ated. The game that is caught, the implement of the chase 
that is manufactured, belongs, by the consent of all, to him by 
whom it is caught or made. Nor is any alteration produced 
in this law because the successful person has so much strength, 
skiU, and enterprise, that he can catch or manufacture two or 



OF THE POSSESSION OF WEALTH. 127 

three times as much as any other member of the tribe. The 
property is still recognized as his, for this simple reason, if for 
no other, — that he would not put forth his force and ingenu- 
ity, if others should deprive him of their fruits. Again, if he 
chooses to hold these articles in reserve, instead of immediately 
consuming them, if he prefers a wigwam well stocked with im- 
plements of war and the chase, and a store of food for future 
use, to present indolence or the immediate gratification of his 
appetites, still his rights of ownership are respected. His pru- 
dence and economy, as much as his strength and skill, are al- 
lowed to redound exclusively to his own advantage. There is 
even a stronger reason for respecting his property in this case 
than in the former one ; for the whole community profit by his 
savings ; they operate to some extent as an insurance to them 
all against famine. There is now a stock of food or imple- 
ments in the tribe, which, though not common property, may 
still operate for the benefit of all at some future day, when the 
chase happens to be unproductive, because the owner will sell 
them to others for their services, or as a debt, or for honors 
which it may be in their power to bestow. 

In this simple instance, we can easUy see how injurious it 
would be to the common welfare if the rights of property were 
not respected, and how surely such respect tends to an unequal 
distribution of the goods, I will not say, of fortune, but of 
industry and frugality. As men are differently endowed by 
natm^e with faculties of mind and body, with indolence or en- 
ergy, with improvidence or thrift, so their situations in life 
must differ. And it is the true poKcy of society to encourage 
the more valuable qualities ; — not to dishearten frugality by 
depriving it of its savings, nor to foster idleness by feeding it 
with the fruits obtained by the persevering toil of others. In 
civilized society, the same principles hold. The case becomes 
a little more complicated, because, by the transmutations of 
capital that have already been explained, the property of an in- 
dividual is constantly assuming various shapes. But so long 
as it continues productive property, so long, in one form or an- 
other, it must further and assist the operations of labor ; and 
so far it must benefit others as weU as the owner. The gen- 
eral law, that industry is limited by capital, is borne out by the 
obvious consideration, that without implements, machinery, 




128 POLITICAL AND SOCIAL ADVANTAGES 

raw material, and a previously accumulated stock of food and 
clothing, the workman cannot bestow his labor to advantage, 
— cannot, in fact, work at all. 

Even if it were granted, that all the wealth of a nation could 
be distributed equally among all the people, and that the stock 
of it, by obhging all to labor ahke, would for ever remain equal 
to all their wants, — and no more improbable supposition 
could be framed, — it is certain that this would be no real im- 
provement of their condition. " Those who have never known 
freedom from anxiety as to the means of subsistence," says J. 
S. Mill, " are apt to overrate what is gained for positive enjoy- 
ment by the mere absence of that uncertainty. The necessa- 
ries of life, when they have always been secure for the whole 
of life, are scarcely more a subject of consciousness, or a source 
of happiness, than the elements. There is little attractive in a 
monotonous routine, without vicissitudes, but without excite- 
ment, — a life spent in the enforced observance of an external 
rule, and performance of a prescribed task; in which labor 
would be devoid of its chief sweetener, the thought that every 
effort tells perceptibly on the laborer's own interests or on those 
of some one with whom he identifies himself ; in which no one 
could by his own exertions improve his condition, or that of 
the objects of his private affections ; in which no one's way of 
life, occupations, or movements would depend on choice, but 
each would be the slave of all ; — a social system in which iden- 
tity of education and pursuits would impress on all the same 
unvarying type of character, to the destruction of that multi- 
form development of human nature, those manifold unlike- 
nesses, that diversity of tastes and talents, and variety of intel- 
lectual points of view, which, by presenting to each innumer- 
able notions that he could not have conceived of himself, are 
the great stimulus to intellect and the main-spring of mental 
and moral progression. The perfection of social arrangements 
would be, to secure to all persons complete independence and 
freedom of action, subject to no restriction but that of not do- 
ing injury to others ; but the scheme which we are considering 
— (that of an equal partition of wealth and of labor) — abro- 
gates this freedom entirely, and places every action of every 
member of the community under command." 

The rate of wages in any country is determined by the com- 



OF THE POSSESSION OF WEALTH. 129 

petition of the laborers with the capitalists. "Which shall have 
the advantage in the competition wiU depend on the relative 
numbers of the two parties, and will be in an inverse ratio to 
these numbers. In England, certainly, the capitahsts have the 
advantage ; their immense accumulations, and the fewness of 
those who cfin compete with them when compared with the 
vast number of those who subsist entirely upon wages, enable 
them generally to dictate their own terms, and to keep wages 
at the lowest point which will supply the workmen with the 
necessaries of life. In this country, it is quite as certain that 
the laborers have the advantage ; most of them have a little 
capital of their own, on which they could subsist for a time, 
or, owing to the great demand for labor, they can find work in 
other establishments, perhaps in other trades. Here, frequent- 
ly, it is not the employer who discharges the workman or the 
domestic, but the workman or the domestic who discharges 
the employer. 

Many kinds of production can be successfully kept up only 
upon a large scale ; for the larger the enterprise, the further the 
division of labor may be carried. In order to keep such enter- 
prises in motion, capital must be aggregated in large masses. 
In England, the great inequahty of the distribution of wealth 
allows such enterprises to be managed by individuals ; in most 
cases, a large manufacturing establishment is owned either by 
one person, or by a firm which embraces but a few partners. 
In the United States, from the comparative paucity of large 
private fortunes, such an establishment is generally formed and 
conducted by a joint-stock company, — which is comparatively 
a modern invention, but one that, from its democratic charac- 
ter, is peculiarly suited to this country, and to the wants of the 
age. Many small capitalists, by clubbing their means, can 
successfully compete with men of vast fortune, — an undertak- 
ing which would otherwise be a hopeless one, as the great cap- 
itaUst can five through reverses of trade, commercial crises, 
and casualties, which would ruin one who had little or noth- 
ing in reserve. So consonant are these joint-stock companies 
to the genius of our institutions and to the circumstances of 
the country, that they have multiplied with astonishing rapid- 
ity. They have survived even the necessity which called them 
forth ; for as large private fortunes have sprung up with the 



130 ADVANTAGES OF THE POSSESSION OF WEALTH. 

growth of national opulence, the owners of them have pre- 
ferred to distribute their capital by taking stock in many of 
these associations, rather than to concentrate it upon one un- 
dertaking. The risk of a sweeping calamity is thus materiaJly 
diminished. I know of nothing more irrational than the com- 
mon prejudice against such corporations. They are true sav- 
ings' banks, in which the common laborer not infrequently 
invests his modest savings, and shares the gains of his wealthy 
employer, instead of being crushed by competition with him. 
It is not unusual, I believe, for operatives to hold stock in the 
very manufactories in which they work for wages. At any 
rate, the savings' bank, to which they first confide the fruits of 
their economy, often invests them in such stock. These cor- 
porations allow persons of very moderate means to participate 
in enterprises which, in other countries, are conducted exclu- 
sively by the rich. The occasional failure of one of themi does 
not bankrupt many of the stockholders, whose property, in- 
vested in other ways, is left untouched ; and as this seems a 
hardship to the creditor who has lost a portion of his debt, he 
is apt to declaim against those who are rich, and still do not 
pay what they owe. But his accusation is unjust ; he who 
allows such an institution to become indebted to him, trusts it 
on account of the largeness of its capital, and its supposed sol- 
vency. It is the same thing for him, whether he trusts an indi- 
vidual or a corporation, the ground of his confidence, in either 
case, being his knowledge of the fact that the person or the cor- 
poration began business, perhaps, with half a mUHon of capi- 
tal, and he knows not that this capital has been wasted or lost. 
If he prefers, he may trust an individual who is supposed to 
be worth only $ 50,000, instead of a corporation reckoned at 
ten times that sum. If he chooses the latter course, he trusts 
the corporation, not the stockholders ; he dehberately prefers 
the joint-stock security to the security offered by individuals ; 
and, consequently, has no reason to complain if the latter do 
not pay him. 



THE MALTHUSIAN THEORY OF POPULATION. 131 



CHAPTER XI. 

THE MALTHUSIAN THEORY OF POPULATION CONSIDERED AND 

REFUTED. 

The laws of Political Economy, for the most part, it has 
been remarked, are inferences from the general fact, that indi- 
viduals compete with each other in the pursuit of wealth. 
Rents, profits, wages, prices, are determined by competition ; 
and as we are able to foresee what the effects of competition 
will be, we can show how these things will vary under given 
circumstances. Thus, profits tend to an equality in aU em- 
ployments, because capitalists compete with each other, and 
will withdraw their capital from a business which is less profit- 
able, to invest it in one which is more so ; this influx of capital 
into the more lucrative employment soon reduces the rate of 
profit in it to a level with the profits in other employments. 
The price of an article, of which there is a given quantity in 
the market, is determined by the demand for it, — that is, by 
the competition of the buyers. And this demand, again, regu- 
lates the future supply of that article ; for as the competition 
of the buyers becomes warm, the price is enhanced, the profits 
of those who produce the article are increased, more capital is 
attracted into the employment, the supply is enlarged, and the 
price falls again. 

These principles are sufficiently obvious, and if there were 
not exceptional cases, if their application was not modified and 
restricted by a crowd of circumstances, political economy 
might be called a demonstrative, or even an intuitive, science. 
Its maxims might all be taken for granted, and men would act 
upon them without giving themselves the trouble of enunciat- 
ing them in an abstract form. But there are numerous excep- 
tions and modifying cu'cumstances, which need to be carefully 
considered ; and in this chapter I propose to examine the most 
important of them. 

There are two things the supply of which is not regulated 
by the demand; and they are two very important things, — 



132 THE MALTHUSIAN THEORY OF POPULATION. 

namely, land and population. Our wants and our desires do 
not, in these two cases, create, or even tend to create, the 
means of satisfying them ; those means are whoUy beyond our 
control. We cannot increase the quantity of surface of the 
habitable globe ; we cannot, at wiU, either enlarge the popula- 
tion, or put limits to its growth, except by transgressing the 
moral laws which guard the sanctity of human life. It is con- 
ceivable that the weU-being of a community may be greatly 
affected by these two inexorable facts. With aU its labor and 
ingenuity, it cannot materially enlarge the limits of its terri- 
tory, except by robbing its neighbors ; it may reclaim a little 
land from the waters along the margin of a river, a lake, or an 
ocean ; but it is obvious that its power in this respect is re- 
stricted within very narrow limits. And if its population 
should begin to waste away, or to increase with undue and 
inconvenient rapidity, the wiU of a monarch or the wishes of a 
people would not suffice to arrest either its decline or its 
growth. Still they are dependent for food upon the products 
of the land, the amount of which products must finally be lim- 
ited by the extent of surface of the earth ; — I say, raw&i finally 
be so limited, because improvements in agriculture, the dis- 
covery of new means of increasing the product of a given sur- 
face of ground, may continually push the limit farther off, and 
open the way almost for an indefinite increase of the present 
population of the globe. 

Yet on tliis possible or conceivable increase of the numbers 
of mankind, united with the fact that the cultivable surface of 
the earth is determined by fixed boundaries, which cannot be 
overleaped, is founded the celebrated theory of Mr. Malthus, 
and the doctrines which that theory is usually made to sup- 
port. We are not at liberty to put aside the discussion of this 
theory, as if it were, what at first sight it appears to be, a mere 
speculation, which can have no practical importance except in 
a contingency certainly very remote, and which may never be 
realized. It is dwelt upon and applied by nearly aU the Eng- 
lish economists as if it were a truth of great moment, immedi- 
ate in its bearings, and fruitful in results. The whole subject 
of political economy is colored with it ; it affects the doctrine 
of rent, profits, and wages, and leads to inferences in respect 
to each of them, which otherwise would be immediately re- 
jected. 



THE MALTHUSIAN THEORY OF POPULATION. 133 

The professed followers of Malthus are somewhat dogmatic 
in their enunciation of the doctrine, and altogether impatient 
of any doubt or question as to its correctness. This positive- 
ness arises from a perception of the unquestionable correctness 
of the data on which the theory is founded, and of the chief 
features of the theory itself; whUe the general reluctance to 
accept it proceeds from involuntary dread of the shocking con- 
clusions that it has been made to support, and from disgust at 
the consequences of its practical application. The doctrine of 
Malthus is sometimes understood, in its extended sense, to 
comprise the whole body of these inferences from it, together 
with its immediate application as advice to men for the gov- 
ernment of their conduct and the regulation of society ; and it 
is when thus understood, that the common sense and natural 
feelings of mankind shrink from it with that strong aversion 
which the followers of the theory are apt to stigmatize as " sen- 
timental horror." Taken in the more restricted meaning, 
which is always used when the theory is controverted or de- 
nied, Malthusianism contains only one or two truisms about 
the law of increase that is common to the human race with the 
whole animal creation, which have no practical importance 
whatever, except for the purpose to which they were first ap- 
plied by Malthus himself, — namely, to confute an absurd 
speculation by Godwin as to the perfectibility of the social 
state. Upon this ambiguity of meaning depends the whole 
controversy as to the law of population, and its consequences 
upon the weU-being of society. 

The proposition upon which the whole theory rests is this, 
— that the power of increase of any race of animals, the hu- 
man species included, is indefinite, or incapable of exhaustion ; 
and if it were exercised to the utmost, without any check from 
external circumstances or from the animaVs power of self-control, 
the earth would not be large enough, I do not say merely, to 
afford subsistence, but even to give standing-room, to the 
beings who would claim a place upon it. The capacity of in- 
crease necessarily acts in a geometrical progression ; for each 
pan being capable of procreation, if the race, under certain cir- 
cumstances, increases within thirty years from ten thousand to 
twenty thousand, a mere continuance of the same cause and 
the same circumstances would enlarge the number, within the 
12 



134 THE MALTHUSIAN THEORY OF POPULATION. 

next thirty years, to forty thousand; and the tMrd period 
would carry it to eighty thousand. For example, a given rate 
of increase, in the ten years from 1790 to 1800, added but 
1,200,000 to the white population of this country ; but from 
1830 to 1840, the same rate of increase added 3,600,000. The 
population was more than doubled from 1790 to 1820 ; it was 
again more than doubled from 1820 to 1850. But the former 
doubling added less than five millions to our numbers, while 
the latter doubling added over ten millions ; and the next 
doubling, in 1880, wiU add twenty millions. This law of pos- 
sible increase in a geometrical progression belongs to every 
species, both of the animal and vegetable kingdom, of which 
we have any knowledge ; it is an immediate and logical infer- 
ence from the self-evident fact, that every pair, whether of the 
earliest or the latest generation, whether forming part of a very 
small or a very numerous community, is equally capable of 
continuing and multiplying its kind. Its prolific power is not 
at all affected by the greater or smaller number of its feUow- 
creatures which may be already in being. If population 
should go on in this manner without check, it is evident that, 
within a few centuries, the earth might literally be overstocked 
with human beings ; if they should stand shoulder to shoulder, 
as thickly as the stalks of wheat in a cultivated field at harvest- 
time, every plain, vaUey, and hill-top, the surface even of every 
sea and ocean, might be covered with them ; and there would 
still be a call for room, for the next thnty years would inevi- 
tably double even this immense assemblage, which we have 
supposed to be already like the sands of the sea for multitude. 
Observe that this law of increase by geometrical progression 
holds good, whether the annual rate of increase be fast or slow. 
In the United States, for instance, the annual rate, exclusive of 
the effects of immigration, is 2.39 per cent, and, as a conse- 
quence, the population is doubled in little over 32 years. In 
France, the annual rate is but 0.6 (six tenths of one per cent), 
and the population, therefore, is not doubled in less than 115 
years. Still, it will be doubled in that time, and therefore, in 
230 years, it will be quadi-upled, thus following the law of in- 
crease by geometrical progression, if it increase at all. The 
theory of Malthus may be said to owe its plausibility, in great 
part, to the fact with which all arithmeticians are very famil- 



THE MALTHUSIAN THEORY OF POPULATION. 135 

iar, that a number increasing by geometrical progression with- 
in a given period rises to a very formidable amount. Thus, 
McCuUoch calculates that the population of the United 
States, if the present annual rate of increase should continue, in 
one century from this time will amount to 240 millions ; and 
in two centuries, that is, in A. D. 2050, it wiU reach the very 
respectable sum of 3,840 millions, or nearly five times the 
present population of the globe. The possibility of such a re- 
sult is certainly appalling, and at first sight, it may appear to 
justify the alarm expressed by the Malthusians. 

Even without taking into view the ultimate check to the in- 
crease of the numbers of mankind that wiU be found in the 
limited extent of the earth's surface, IVIr. Malthus undertakes 
to show, that the means of subsistence, under the most favor- 
able circumstances, cannot increase so rapidly as the number 
of mouths calling for food. The race of population against 
food, he maintains, is like that of AchiUes against a tortoise ; 
it is too unequal, whatever may be the advantage at first pos- 
sessed by the weaker party. Whatever may be the present 
superfluity of sustenance, or of the means of increasing suste- 
nance, population multiplies so fast, that it must soon overtake 
and surpass the supply of nourishment. Looking at first only 
to Great Britain, he says : — "If it be allowed, that, by the 
best possible policy and great encouragements to agriculture, 
the average produce of the island could be doubled in the first 
twenty-five years, it will be allowing probably a greater in- 
crease than could with reason be expected. In the next 
twenty-five years, it is impossible to suppose that the produce 
could be quadrupled. It would be contrary to aU our knowl- 
edge of the properties of land. The improvement of the bar- 
ren parts would be a work of time and labor ; and it must be 
evident to those who have the slightest acquaintance with ag- 
ricultural subjects, that, in proportion as cultivation extended, 
the additions that could yearly be made to the former average 
produce must be gradually and regularly diminishing. That 
we may be the better able to compare the increase of popula- 
tion and food, let us make a supposition, which, without pre- 
tending to accm-acy, is clearly more favorable to the power of 
production in the earth than any experience we have had of its 
qualities will warrant. 



136 THE MALTHUSIAN THEORY OF POPULATION. 

" Let us suppose that the yearly additions which might be 
made to the former average produce, instead of decreasing, 
which they certainly would do, were to remain the same ; and 
that the produce of this island might be increased, every 
twenty-five years, by a quantity equal to what it at present 
produces. The most enthusiastic speculator cannot suppose a 
greater increase than this. In a few centuries, it would make 
every acre of land in the island like a garden. If this suppo- 
sition be applied to the whole earth, and if it be allowed that 
the subsistence for man which the earth affords might be in- 
creased every twenty-five years by a quantity equal to what it 
at present produces, this will be supposing a rate of increase 
much greater than we can imagine that any possible exertions 
of mankind could make it. It may fairly be pronounced, 
therefore, that, considering the present average state of the 
earth, the means of svbsistence, under circumstances the most 
favorable to human industry, could not possibly be made to in- 
crease faster than in an arithmetical ratio. 

" The necessary effects of these two different rates of in- 
crease, when brought together, will be very striking. Let us 
call the population of this island 11 millions, and suppose the 
present produce equal to the easy support of such a number. 
In the first 25 years, the population would be 22 millions, and, 
the food being J also doubled, the means of subsistence would 
be equal to this increase. In the next 25 years, the population 
would be 44 millions, and the means of subsistence only equal 
to the support of 33 millions. In the next period, the population 
would be 88 millions, and the means of svibsistence just equal 
to the support of half that number. And at the conclusion of 
the first century, the population would be 176 millions, and the 
means of subsistence only equal to the support of 55 millions, 
leaving a population of 121 millions totally unprovided for. 

'' Taking the whole earth instead of this island, emigration 
would of course be excluded ; and supposing the present pop- 
ulation equal to one thousand millions, the human species 
would increase as the numbers 1, 2, 4, 8, 16, 32, 64, 128, 256, 
and subsistence as 1, 2, 3, 4, 5, 6, 7, 8, 9. In two centuries, 
the population would be to the means of subsistence as 256 to 
9 ; in three centuries, as 4,096 to 13 ; and in two thousand 
years, the difference would be almost incalculable." 



THE MALTHUSIAN THEORY OF POPULATION. 137 

We cannot find much comfort in the fact, that the human 
race have aheady inhabited this globe for more than six thou- 
sand years, a period surely long enough, with the aid of a geo- 
metrical progression, even if the annual rate of increase had 
been very small, but regular, to have brought into being vastly 
more than the poor 800 millions who now stock the earth. In 
former times and in barbarous countries, war, pestilence, fam- 
ine, tyranny, and all the other ills which uncivilized man is 
heir to, not only kept down the rate of increase, but often 
caused the population to retrograde. Practically, down to the 
present day, the only evil which has been felt has been, not an 
excess, but a deficiency, of population. Even Spain, once the 
head of European civilization, had ten millions of inhabitants 
in the middle of the sixteenth century, and one hundred and 
twenty years afterwards, it had only six milfions. The classi- 
cal scholar need not be reminded of the still more striking 
depopulation of Italy under the Roman emperors, and, at a 
stni earlier day, of the provinces which now constitute Turkey 
in Europe. Asia Minor and the region on the banks of the 
Tigris and Euphrates ^vere teeming with inhabitants twenty- 
five centuries ago, while they are now very sparsely populated, 
and probably do not increase at all. But the causes w^hich 
formerly kept down the natural increase of the people have 
now, in all civilized communities, in a great measure ceased 
to act. War is, at present, an infrequent and much less de- 
structive calamity. Epidemic diseases no longer lay waste 
whole provinces ; remedies for them, or modes of preventing 
them, have been discovered. The practice of vaccination 
alone, by robbing that frightful disease, the smaU-pox, of its 
terrors, has added some years to the average duration of hu- 
man life. The greater prevalence of cleanliness, the improve- 
ment of the diet, dress, lodgings, and other accommodations of 
the mass of the people, and the drainage of bogs and marshes, 
by which agues and marsh fevers have been prevented, with 
the many improvements in medical and surgical science, have 
materially lessened the rate of mortality, and thus caused the 
population to increase more rapidly. 

A comparison, made by M. de Chateauneuf, of the move- 
ment of the population in most countries of Em-ope from 1825 
to 1830 with what it was from 1775 to 1780, an interval of 
12* 



138 THE MALTHUSIAN THEORY OF POPULATION. 

only half a century, supplies some striking illustrations of this 
point. Out of a given number of children born in Europe, 
only one third, says the author, now die in the first ten years, 
while formerly one half died within that period. Fifty years 
after birth, three fourths of a generation, or 75 in a hundred, 
had died ; now, only thirteen twentieths, or 65 in a hundred, 
die below the age of fifty. Twenty-three in a hundred, instead 
of only eighteen, now reach the age of sixty. The proportion 
of deaths to the whole population is now as one to forty ; for- 
merly, it was as high as one to thirty-two. 

These facts to most people would seem to afford great 
cause for congratulation. Human life has been made longer ; 
disease has lost a portion of its power, or has been conquered 
by care and medical science. Population is kept up, not mere- 
ly by increasing the number of births, but by lessening the pro- 
portion of deaths ; thus, among a given number of inhabitants, 
there are fewer children ; and hence the average strength and 
capacity, the productive power of the community, is increased. 
" The prevalent opinion," says McCulloch, " had been, that an 
increase of population was the most decisive mark of the pros- 
perity of a state, and that it was the duty of government to 
stimulate its increase, by encouraging early marriages, and 
granting exemptions from onerous public services and bestow- 
ing rewards on those who reared the greatest number of chil- 
dren." Many such expedients were tried at Rome under the 
republic and the empire. 

" But Mr. Malthus," he adds, " has set the erroneous nature 
of this policy in the most striking point of view. He has 
shown, by a careful examination of the state of countries in 
every stage of civilization, and placed under the most opposite 
circumstances, that the number of inhabitants is everywhere 
proportioned to the means of subsistence ; that the tendency 
of the principle of increase is not to fall below, but to exceed, 
these means ; and that, consequently, wherever the population 
is not kept down to its necessary level by the influence of 
moral restraint, or by the exercise of a proper degree of pru- 
dence and forethought in the formation of marriages, it must 
be kept down by the influence of mortality originating in vice, 
want, and misery." 

I cannot trace out here all the gloomy consequences which 



THE MALTHUSIAN THEORY OF POPULATION. 139 

Malthus and his followers derive from his theory ; it must suf- 
fice to indicate a few of them. He assumes that the popula- 
tion in every country in Europe has already increased to such 
a degree, that it is actually pressing upon the means of subsist- 
ence ; and as it tends still to multiply faster than the quantity 
of food can be increased, the low wages of labor, poverty, dis- 
ease, crime, and an average duration of life much less than it 
might be, are the inevitable consequences. Stop up the evil 
in one quarter, and it must break out in another, on account 
of the prolific power which is in reserve. Put an end to war, 
and famine, or some epidemic disease, must take its place, and 
carry off yearly as many victims as the war would have done. 
Stop the ravages of the small-pox by vaccination, and the Asi- 
atic cholera, or some other disease, must appear to scourge 
mankind with an equivalent number of deaths, if they will not 
learn prudence enough to diminish the number of marriages 
and births. -The vessel is aheady full, and it is also fed from 
beneath with perennial springs. Check the overflow in one 
quarter, therefore, and it must escape in another. I will quote 
Mr, Malthus's own words. " I feel not the slightest doubt," 
he says, " that if the introduction of the cow-pox should extir- 
pate the small-pox, and yet the number of marriages continue 
the same, we shall find a very perceptible difference in the in- 
creased mortality of some other disease." Wages, it is further 
said, depend on the proportion between the numbers of the 
laboring class and the capital which is devoted to paying for 
labor. As the number of those seeking employment increases, 
— and it always tends, like a depressed spring, to increase, — 
the laborers compete with each other in offering to work at low 
prices, and wages inevitably fall. Vainly does private munifi- 
cence or public liberality seek to prevent this evil. Interfer- 
ence, in fact, only does harm ; if the laborer can look to a poor 
fund, or to private charity, to provide against the effects of his 
imprudence, he will never learn to be prudent. Leave him 
alone, then, say the Malthusians, to be chastised by fever, 
hunger, and misery, into a sense of his obligation to society to 
refrain from increasing the number of his class. Let not the 
possession of a starving family constitute an additional claim 
for him who begs your charity ; rather let it be his punishment. 
To devise means for relieving the present Mghtful condition 



140 THE MALTHUSIAN THEORY OF POPULATION. 

of the laboring poor in England and Ireland is a hopeless and 
insoluble problem. The best advice which the leading econo- 
mist of this school can give his countrymen, in respect to tliis 
subject, is, that they should " fold their arms, and leave the di- 
nouement to time and Providence." 

The most effectual means of keeping down the increase of 
population, it is said, is to raise the laborer's ideas of what is 
necessary for his maintenance. Thus, says Mr. Thomson, " a 
laborer in Ireland wiU live and bring up a family on potatoes ; 
a laborer in England will see the world unpeopled first. Eng- 
lishmen have the physical capability of living on potatoes as 
much as other men ; but fortunately they have not the habit ; 
and though it might be wrong to say that they would starve 
first in their own persons, they will utterly refuse to multiply 
upon such diet, the effect of which on population is ultimately 
the same. The Englishman will not live and bring up a fam- 
ily on potatoes ; because, though he may consent to five on 
them when he can positively procure nothing else, habit, 
custom, the opinion of those around him, have made it in his 
eyes contemptible, irrational, absurd, for a man to be living on 
potatoes when he has the opportunity of getting anything bet- 
ter. In his hours of prosperity, therefore, he will to a cer- 
tainty solace himself upon bacon, and most probably venture 
upon beef; and as tliis absorbs a greater portion of his income 
in what he views as necessary to his individual existence, it 
proportionally reduces his disposition to burden himself with 
new mouths. If the Irishman had the prospect of all this ba- 
con and beef, he would view it as convertible into potatoes for 
a family hke a patriarch's. The Englishman thinks it but de- 
cency to swallow aU, and omits the family." 

I have endeavored to give as full a view as possible of the 
theory of Malthus and its consequences, without disguising 
the force of any of the considerations that may be adduced in 
its support. Without accusing it of any demoralizing tenden- 
cies, it must be admitted to present a very gloomy view of the 
condition of the human race, and of the ways of Providence 
with man. It justifies the stoical indifference with which 
many regard the woes of their brethren, and the evils of the 
social state, when they wish to avoid any responsibility for 
their continuance, or when they despair of being able to re- 



ii 



THE MALTHUSIAN THEORY OF POPULATION. 141 

lieve them. I hope to prove satisfactorily, that the doctrine 
itself is a mere hypothetical speculation, having no relation to 
the times in which we live, or to any which are near at hand. 
In those facts which appear so alarming to the Malthusians, I 
see only indications of a beneficent arrangement of Providence, 
by which it is ordained that the barbarous races which now 
tenant the earth should waste away and finally disappear, 
while civilized men are not only to multiply, but to spread, 
tiU the farthest corners of the earth shall be given to them for 
a habitation. 

I begin with the proposition, that the power of the earth to 
afford sustenance is now so far in advance of the actual num- 
bers of mankind, that no probable, and in fact no possible, in- 
crease of those numbers, not even by a geometrical progression, 
can create a general and permanent scarcity for centuries to 
come. The great and palpable error of the Malthusians con- 
sists in assuming, without a particle of evidence, nay, when 
all the evidence tends to the contrary, that the time has already 
come, that population has reached its limits, that there is even 
now a deficiency of food, so that the only present mode of in- 
creasing the happiness of the lower classes is to lessen their 
numbers. Malthusianism in its simplest form is only the ex- 
pression of a law that belongs both to the animal and vegeta- 
ble kingdom, and its truth is undeniable ; yet we say that it 
has no applicability to the present state of affau-s, and we have 
no immediate concern in establishing its truth or falsehood. 
If a speculatist in natural philosophy should undertake to de- 
monstrate that the sun was gradually but surely expending its 
stock of light and heat, constant drafts being made upon it in 
those immense floods of radiance and warmth with which it 
now inundates every part of the solar system, and there being 
no means of supplying the waste, so that the time must inev- 
itably come, in the lapse of ages, when this now glorious orb 
will appear utterly dark and cold, we should listen to his evi- 
dence certainly with attention and respect, as to the announce- 
ment of a curious truth in science ; but if any individual, on 
the strength of this supposed discovery, should preach up the 
instant necessity of economizing with the utmost care our fuel 
and oil, should advise people to go to bed at sundown in order 
to save candles, and to warm themselves by flannels instead 



142 THE MALTHUSIAN THEORY OF POPULATION. 

of fires, his friends would reasonably be alarmed for his sanity, 
and would urge him to retire for a while to a mad-house. 

The absurdity of talking about the necessary pressure of 
population upon the means of subsistence, as an explanation 
of the evils with which society is now oppressed, was well ex- 
posed, many years ago, by Colonel Thompson. " If it should 
be urged," he says, "that there must always come a time when 
population will press against food, and therefore there is no 
use in attempting to escape it ; this would be like urging that 
there is no use in a man's escaping from murder now, because 
he will not be immortal afterwards. There is all the difference 
in the world between enduring an evil by the will of Provi- 
dence, and by the act of man. Human Ufe, in the whole, is 
but the procrastination of death ; but that is no reason \vhy 
men should die just now, for other men's convenience. There 
may come a time when there will be no coal to burn, no iron 
to make tools, and perhaps no salt left in the sea ; but this is 
no reason why men should not make something of the interval 
which must intervene. The time when population will press 
irremediably against food must, to a great manufacturing and 
naval people, be almost as remote as the time when there will 
be no salt left in the sea. And come when it may, it must al- 
ways come gradually, which is by itself no small diminution 
of the mischief." 

The average density of population in Earope, in which 
quarter of the globe alone any excess of numbers is to be 
feared for centuries to come, does not amount to 70 persons 
to the square mile. The Europeans, then, on an average, are 
not quite so crowded as are the inhabitants of Spain, a coun- 
try the population of which might be increased fourfold before 
it would be as thickly peopled even as England. Belgium has 
the densest population of any state on the Continent of consid- 
erable magnitude, the average (in 1846) amounting to at least 
344 persons to the square mile. Great Britain and Ireland, in 
respect to which the complaints of over-population have been 
loudest and most frequent, had but 235 to the square mile in 
1851, so that the population might be increased nearly 50 per 
cent before these countries would be as densely peopled as 
Belgium. Taking all Europe together, the population might 
be five times as gi'eat as it is now, before the inhabitants 



THE MALTHUSIAN THEORY OF POPULATION. 143 

would be as crowded as they are already in Belgium. Sup- 
posing that the average rate of increase for aU Europe were as 
high as it now is in France, a supposition which is certainly 
beyond the truth, more than three centuries must elapse before 
the Continent could be thus peopled, even if no allowance were 
made for emigration and the gradual lessening of the rates of 
increase as the population becomes more dense. Making al- 
lowance for these checks, the period must be increased to at 
least five centuries. An evil which is at least five hundred 
years distant from us, need not excite much alarm in the pres- 
ent generation. Before this period elapses, it has been calcu- 
lated that the stock of bituminous coal in England may be 
exhausted, — an article on which British power and wealth 
unquestionably depend. Yet we have not heard any fear ex- 
pressed on this score, nor has economy in the consumption of 
coal been recommended, though such strenuous efforts have 
been made to deter the laboring poor from forming early and 
imprudent marriages. 

Is there any evidence, then, that Belgium is over-peopled, 
the country which is already in the condition that all Em'ope 
fears it will arrive at some five centuries hence? By no 
means. The information which shows that it is not, I derive 
from McCulloch, one of the ablest statisticians of Europe, and 
who is himself an ardent upholder of the theory of Malthus, so 
that his testimony can be received without question. " Al- 
though the cultivation of the earth in this kingdom is carried 
to a great extent, one eleventh of the surface still remains 
uncultivated ; one eighth consists of grass lands, and the arable 
lands occupy one half. The very large produce obtained by 
the Flemish farmer is solely attributable to indefatigable in- 
dustry ; for the soil is naturally poor, and the climate is by no 
means especially favorable, the winters being longer and more 
severe than in England. The most fertile districts in the 
country were formerly alluvial morasses, which have been 
drained and embanked, or have been gained entirely from the 
bed of the ocean, against which they are now protected by 
dykes. The provinces of "West and East Flanders and Hai- 
nault form a far-stretching plain, of which the luxmiant vege- 
tation indicates the indefatigable care and labor bestowed 
upon its cultivation ; for the natural soil consists almost 



144 THE MALTHUSIAN THEORY OF POPULATION. 

wholly of barren sand, and its great fertility is entirely the 
result of very skilful management." The account of the nat- 
ural condition of most of the other portions of the country is 
but little more favorable. " The central part of the kingdom 
includes much of the richest portion of the soil ; but it does 
not, on the whole, exceed the average fertility of the inland 
counties of England, and must decidedly be considered infe- 
rior to the rich alluvial soils denominated the carses of Scot- 
land. But taking the whole country together, the soil, artifi- 
cially enriched, produces more than double the quantity of 
corn required for the consumption of its inhabitants, and agri- 
cultural produce is exported to a great extent." * 

Looking, therefore, merely to the capacity of the earth to 
afford sustenance, it appears that the most densely peopled 
country in Europe, and one by no means richly favored in re- 
spect to the natural properties of its soil, is not yet more than 
half populated ; and still several centuries must elapse before 
all Em-ope can be as densely populated as Belgium. Tm-ning 
to America, we find the basin of one great river, the Mississippi, 
capable of supporting as many inhabitants as now occupy all 
Em-ope, though the actual population of the whole United 
States does not equal one tenth part of that number. If we 
add the tropical and southern portions of the great American 
continent, and then go to the Antipodes to look at Australia, 
the area of which does not fall far short of that of all Europe, 
— if we consider what an insignificant fraction of these vast 
regions is yet tenanted by civilized man, — we are obliged to 
give up our statistical calculations in despair ; the imagination 
fails to grasp the possible number of human beings whom the 
earth might support, or the number of years that must elapse 
(judging from the world's history thus far) before this ex- 
tent of space can be fully peopled, and there can be a just 
call for room. 

Till this limit is approached, — that is, for several centuries 
yet to come, — every birth adds something, or might add some- 
thing, to the possible sinrplus of food. If there are more 
mouths to feed, there are more hands to feed them with ; if 



* These statements are selected from the article on Belgium in McCuUoch's Geo- 
graphical Dictionary. 



THE MALTHUSIAN THEORY OF POPULATION. 145 

there is more work to be done, there are more laborers to do 
it. It is demonstrable that, even in Ireland, (until its popula- 
tion shall be thrice as great as it is at present,) since the labor 
of one person upon the soil must produce more than is neces- 
sary for his personal subsistence, the more hands there are em- 
ployed in agriculture, the greater will be the surplus for those 
engaged in other occupations. That the surplus will not in- 
crease in the same ratio with the number of agricultural labor- 
ers, is a fact of no importance ; before the growth of the popu- 
lation can be checked by absolute deficiency of food, there 
must cease to be any surplus, and the earth must not yield 
enough even for the subsistence of him who cultivates it. We 
may have as much dread of this contingency as of the sun's 
expending its whole stock of light and heat, or of there being 
no salt left in the sea. 

Ireland is an instance directly in point to bring the doctrine 
of the Malthusians to a test. They say that the island is over- 
peopled, and that their excessive number is the cause of the 
wretchedness of its inhabitants. But in ordinary years, Ire- 
land not only supplies food for her whole population, but her 
exports of the cereal grains alone amount to five miUions ster- 
ling, and of meat, butter, and cheese to at least half as much 
more. It is absm-d, then, to say that the population is here 
pressing against the means of subsistence ; and if the doctrine 
does not hold true in this case, to what country in the civilized 
world is it applicable ? Another view of the matter leads to 
the same result. If the land were parcelled out, and the same 
modes of cultivation pursued, in Ireland as in the Netherlands, 
the former country being naturally far the more fertile of the 
two, it is demonstrable that the soU would furnish abundance 
of food for twenty-six millions of inhabitants, instead of sup- 
porting, as it now does, little over six millions, one half of 
whom, five years ago, were on the brink of starvation. 

Barbarous, and even half-civilized nations, it is admitted on 
all hands, are in no danger of multiplying too rapidly ; the law 
of a geometrical progression is not applicable to them ; they 
do not increase, but decrease. The aborigines of a country, 
wherever they come in contact with civihzation, melt away as 
ice and snow do at the approach of summer. So it has been 
with the Indians of our own continent, with the natives of 
13 



146 THE MALTHUSIAN THEORY OF POPULATION. 

Australia, the Hottentots of South Africa, the Moors of Bar- 
bary, and the natives of the Pacific isles ; and so it must al- 
ways be. War, disease, vice, and ignorance, which are neces- 
sary accompaniments of the savage state, are destructive of 
human life ; they do not allow the population to increase, they 
seldom allow it to hold its own. Go a little higher in the so- 
cial scale, and this result is but little modified. The Turks, 
the Arabs, the Tartars, the Hindoos, are probably not so nu- 
merous as they were a century ago. The countries which 
now form Tm-key in Europe and Turkey in Asia were more 
populous two or three thousand years ago, than they are at the 
present day. The wasting away of such tribes may be, in 
some cases, the consequence of a deficiency of food ; but it is 
certainly not the result of over-population ; for the civilized 
men who come to occupy their places, obtain from the same 
soil abundance of food for a population larger than theirs by 
twenty or a hundred fold. The North American Indians, 
when their hunting-grounds generally exceeded ten square 
miles for every member of the tribe, and the soil was often 
of great fertility, were sometimes severely pinched by famine. 
For this reason, infanticide was not infrequent among them, 
and life was shortened by privation and hardship. So far, 
then, as the mere lack of food proves excess of numbers, the 
Malthusians might as well have preached abstinence from mar- 
riage to them as to the Irish. In both cases, the bounty of 
Providence is not exhausted, but men do not make proper use 
of the means that are within their reach for satisfying their 
bodily wants ; it matters not whether they leave the soil un- 
tilled altogether, or send a large portion of its product out of 
the country while millions are famishing at home. 

Civifized nations, let them multiply as fast as they may, do 
not devote their attention chiefly, or even in great part, to the 
supply of food, but to the pursuit of wealth. Exchangeable 
value in general, not the means of subsistence even in partic- 
ular, is the object of their endeavors. What matters it to me, 
that my neighbor owns and cultivates a large extent of fertile 
land, while I do not own a square foot, provided that I have 
plenty of money in my purse ? With that money, I know, I 
can purchase food of my neighbor, that I can even lay the fer- 
tility of both Indies and of the farthest corners of the earth 



THE MALTHUSIAN THEORY OF POPULATION. 147 

under contribution to supply my personal wants. Communi- 
ties and nations act, in this respect, just like individuals. If it 
shoiild be more profitable to them to devote their arable lands 
to other pm'poses than those of husbandry, they will do so 
without hesitation, being confident that they will be supplied 
fi'om other lands. The inhabitants of the island of Barbadoes, 
with a soil abundantly capable of supplying their wants, ac- 
tually devote all their ground and labor to the cultivation of 
sugar, cotton, and a few tropical products, which they export, 
while they import aU their provisions, their wheat, pickled fish 
and salted meat, butter, cheese, &c., from the United States. 
They do not, on their own ground, raise food enough for the 
hundredth part of their own consumption. What they do al- 
most exclusively, all commercial and manufacturing commu- 
nities do to a certain extent. They devote their energies to 
getting wealth, and buy food whencesoever it may come to 
them, being wholly indifferent whether it is raised in their own 
or in foreign lands. Thus, in Massachusetts, as already re- 
marked, we do not raise wheat and cattle enough for our own 
consumption, while our population, as a Malthusian would 
say, is increasing with frightful rapidity. But should we be 
justified, then, in abrogating our laws for the support of pau- 
pers, on the ground that the number of the people already ex- 
ceeded the capacity of the soil to sustain them, and that the 
poor must consequently be chastised into the system of pru- 
dent marriages ? 

Such a plea would appear ridiculous here ; is it any more 
reasonable in Great Britain ? Since the abolition of the corn 
laws, and of other oppressive charges in the British tariff, the 
market price of the chief articles of provision is not, and can- 
not be, ten per cent higher in Liverpool than in Boston ; and 
the supply of these articles (which is the only point that we 
need consider here) is just as abundant in the former place as 
the latter. The farmers of Ohio, Wisconsin, and Iowa would 
rejoice at an opportunity to supply all England and Ireland 
with all the wheat that they require. A failure of the English 
crops, or a multiplication of the English people, is certainly no 
misfortune to us, though we have to supply the food which in 
that case becomes necessary ; is it then a misfortune to the 
English, — a misfortune, I mean, of such a character as to jus- 



148 



THE MALTHUSIAN THEORY OF POPULATION. 



tify them in complaining of the ways of Providence for send- 
ing more human beings upon the earth than the earth is capa- 
ble of supporting ? It is a calamity, unquestionably, in regard 
to the acquisition of wealth; for the necessity of buying so 
much food diminishes their store of wealth. But it is not a 
calamity in regard to the supply of food, or to the limited ex- 
tent and fertility of the earth's surface. Man, not Providence, 
is in fault. Great Britain is obliged to buy all her cotton, an 
article of almost as universal consumption as wheat ; yet this 
fact, being one to which she is habituated, is not made a sub- 
ject of complaint. Cotton, however, can be produced to ad- 
vantage only in a few regions, of comparatively limited extent ; 
while the cereal grains can be raised over three fourths of the 
surface of the habitable globe. Should a new process of agri- 
culture be discovered, by which cotton could be grown over 
all England with so much facility and profit that the yearly 
returns of the farmer would be twice as great as by raising 
wheat, it is very certain that no wheat would then be raised 
on Enghsh ground, and yet there would be no deficiency in ' 
the supply of that necessary article. In this case, she would 
raise her cotton, and buy her wheat ; now, she raises her 
wheat, and buys her cotton. 

We can now see with sufficient distinctness the two great 
facts which afford a complete refutation of Malthusianism. 
The first is, that the limit of population in any country what- 
ever is, not the number of people which the soil of that country 
alone will supply with food, but the number which the surface 
of the whole earth is capable of feeding ; and it is a matter of 
demonstration, that this limit cannot even be approached for 
many centuries. The inability of England alone, or of Ireland 
alone, to supply her teeming population with food, is a fact of 
no more importance in the world's history, than the inabihty 
of the city of London alone to supply her two millions of peo- 
ple with farming produce from her own soU. London taxes 
all the counties of England for sustenance ; England taxes all 
the countries of the earth for sustenance ; — I cannot see any 
difference between the two cases. 

Then, secondly, I say that the practical or actual hmitto the 
growtii of population in every case is the limit to the increase 
and distribution, not of food, but of wealth. Among civilized 



THE MALTHUSIAN THEORY OF POPULATION. 149 

men in modern times, a famine is created, not by any absolute 
deficiency in the supply of food, but because the poorer classes 
have no money to buy it with. As every human being is an 
implement for the production of wealth, a means of enlarging 
the aggregate national product, or the amount of exchangeable 
values belonging to a nation, the increase of population is not 
a cause of scarcity of food, but a preservative against it. It 
makes no difference whether the mass of the people are en- 
gaged in hammering uon, spinning cotton, or raising wheat ; 
for the product in each of these cases either is food, or is ex- 
changeable for food, which amounts to precisely the same 
thing. Commerce distributes equally all products for which 
there is an equal demand. In respect to the supply and the 
price of food. New York has no advantage over Liverpool, be- 
cause there is a wide, fertile, and only half-tenanted region 
lying behind the former, while the latter backs upon a land 
teeming with poverty-stricken millions ; for the supply, whence- 
soever obtained, is distributed between the two places in exact 
proportion to the demand for it in each ; and if the price in 
Liverpool is higher because the grain must be brought thither 
from New York, the price in New York is higher because the 
grain must be carried thence to Liverpool. Our crops did not 
fail in 1847, but the price of grain, in our seaport towns, and 
even in our back country, rose in as great proportion as in Ire- 
land and Scotland. But aU classes of our people were still 
able to buy the grain, even at the advanced price ; while one 
half of the Irish people, and perhaps one sixth of the Scotch, 
were too poor to obtain it at this price, and therefore they hun- 
gered, and very many of them died of starvation. 

This is the true explanation of the famine of 1847 in the 
British Isles. The march of civilization, the extension of trade, 
the facilities of transport, and the consequent ease of supplying 
the failure of the crops in one country by the superabundance 
of the harvest in another, have made the recurrence of a proper 
famine, in modern times, impossible. By a proper famine, I 
mean such an absolute deficiency of food, and impossibility of 
obtaining it on any terms, as is suffered by the garrison of a 
besieged town, or by the crew of a wrecked ship. It is not in 
the scheme of Providence, as hitherto revealed to man, that 
harvests should fail all the world over at the same time, or 
13* 



150 THE MALTHUSIAN THEORY OF POPULATION. 

even for the failure to be so general that the aggregate product 
should not suffice — perhaps with some scrimping and some 
hardship — for the aggregate want. A semi-barbarous nation 
in the far East, or the population of a little island separated 
by thousands of sea-miles from any continent, may suffer from 
a famine, properly so called, before the arm of Christian Eu- 
rope or America can be stretched out to the rescue. But no 
civilized nation, either in the Old or New World, whatever the 
Malthusians may say to alarm them, ever fear an absolute de- 
ficiency of food ; its fields may be unfruitful for a single sea- 
son ; but in such case, it looks with well-founded confidence 
to its neighbors, and even to remote parts of the earth, for a 
supply. In 1847, the bounty of Providence to the British Isles 
did not fail ; ship-loads of corn were turned away from their 
shores for want of a market. The granaries of the two islands 
were filled to overflowing, not indeed from the products of 
their own harvests, but from the immense supplies poured into 
them by our ever-teeming land. Flour and meal became a 
drug in the English market before a sheaf of that year's wheat 
was cut, and many dealers in gi-ain were bankrupted by the 
consequent sudden reduction of prices. If the stock of pro- 
visions had been equally distributed among the people, not a 
man, woman, or child among them Avould have suffered from 
famine for a single hour. The fate of the Irish and Scotch 
appeared the more terrible, because they starved in the midst of 
plenty. They died, not because the fields were cursed with 
barrenness, but because they had not wherewithal to buy food. 
The price of breadstuffs did not become more than double its 
average in ordinary years, did not rise so high by one third as 
in 1800 and 1801 ; and in those years, though there was scar- 
city, there was no famine ; the sufferings of the poor were in- 
creased, but there was no general starvation. The year 1847 
witnessed a frightful anomaly, which will long be remembered 
as a disgrace to modern civilization, — a famine of lohich pov- 
erty ivas almost the sole cause. 

A fallacy pervades the whole reasoning of the Malthusians 
on the relation of the supply of food to the growth of the pop- 
ulation. More gi-ain is raised because there are more men 
who need it, and not more men are raised because there is 
more grain to feed them with. Procreation is not stopped be- 



THE MALTHUSIAN THEORY OF POPULATION. 151 

cause there is no more grain, since misery and the peril of star- 
vation only make men reckless, and cause them to multiply 
faster. But agriculture is stopped when there are no more 
mouths calling for food ; a cessation of demand causes a ces- 
sation of supply here, because the husbandman is looking only 
for pecuniary gain. But in the case of population, a want of 
demand does not occasion a want of supply ; since men are 
urged by their natural inclinations, and not by the state of the 
children-market, or by the desire of profit. They do not al- 
ways marry because they want children, but because they 
want a wife. It is true, that the call for more food, which is 
created by an excess of numbers, will not be an effectual call- 
ing, unless the people have the means to purchase it with ; — 
but these they will never lack, if the wealth of the country is 
distributed according to the natural course of things, — that is, 
in exact proportion to the increase of each family, all the chil- 
dren sharing alike. At any rate, if the demand be rendered 
ineffectual from this cause, the real evil, the real check upon 
the population, is not the insufficient supply of food, but the 
want of property. Turn the matter as we may, it is not the 
niggardliness of nature which is the source of misery, but the 
devices of man and the injustice of the laws. 

I have endeavored to prove, that in the most thickly popu- 
lated country on earth, the number of the people is yet very 
far within the limit of the subsistence which the land is capa- 
ble of affording, even if we look only to the capacities of their 
own soil, and not to the immeasurable suppKes which their 
wealth and commerce might pour in upon them from other 
shores. StiU further, I do not believe there is any danger that 
mankind, even in the lapse of future centuries, wiU ever multi- 
ply up to the limit which the terraqueous globe is able to con- 
tain and nourish. To adopt the favorite metaphor of the Mal- 
thusians, the weights which are now actually keeping down 
the spring of population — that spring which they think is al- 
ways ready to fly up with the full force of a " geometrical pro- 
gression" — are war, vice, unnecessary or curable disease, 
ignorance, idleness, bad habits, bad government, and inequal- 
ity of wealth fostered by bad laws. Remove these, one by 
one, or in a mass, and there will be room for an almost indefi- 
nite expansion of the compressed force, and a consequent in- 



152 THE MALTHUSIAN THEORY OF POPULATION. 

crease of human happiness, before the ultimate check, which 
may be considered as a weight hanging much higher up, can 
come into action through the absolute inability of the earth to 
contain and support more. In truth, it is demonsti'able both 
from reason and experience, that population never can rise to 
the point where it will meet this last and insuperable obstacle. 
Among the lower weights to be first removed are ignorance, 
vice, bad government, and a virtual division of society into 
castes through unnatural yet fixed inequalities of wealth and 
condition. Take away these, and you remove along with 
them the widely spread misery which they foster, and which is 
the great cause why the population multiplies unduly, or un- 
der circumstances that are not fitted for it, because such hope- 
less misery renders men imprudent and reckless, and leads 
them to burden themselves with a family, though they are al- 
ready starving, because they cannot be worse off", and there is 
no hope of improving their estate. To adopt the phraseology 
of Mr. Malthus, take away the " positive check," and the " pre- 
ventive check" will come into play of its own accord, — will 
come into play naturally, inevitably, and without compulsion, 
— not as the consequence of a theory, but as the easy, benefi- 
cent, and necessary result of the laws of nature and nature's 
God. Whatever tends to keep men hopelessly poor is a direct 
encouragement, the strongest of all incentives, to an increase 
of population. Take away the causes of misery, remove the 
insm*mountable barriers which now keep the various classes of 
European society apart, and educate the people, and there 
will be no fears of an excess of numbers. Take away the 
lower weights which keep down the spring, and it will never 
rise high enough to meet the upper one. The bounty and the 
wisdom of Providence never fail. It is not the excess of pop- 
ulation which causes the misery, but the misery which causes 
the excess of population. 

Dr. Whately, with great acuteness, has traced the erroneous 
conclusions of Malthus to an ambiguity in the meaning of a 
word. " By a ' tendency ' towards a certain result, is some- 
times meant the existence of a cause which, operating' nnim- 
peded, would produce that result, Li this sense it may be 
said with truth, that the earth, or any other body moving 
round a centre, has a tendency to fly ofl" at a tangent ; that is, 



THE MALTHUSIAN THEORY OF POPULATION. 153 

the centrifugal force operates in that direction, though it is 
controlled by the centripetal : or, again, that man has a greater 
tendency to faU prostrate than to stand erect ; that is, the at- 
traction of gravitation and the position of the centre of gravity 
are such, that the least breath of air would overset him, but for 
the voluntary exertion of muscular force : and again, that pop- 
ulation has a tendency to increase beyond subsistence ; that 
is, there are in man propensities which, if unrestrained, lead to 
that result. 

" But sometimes, again, ' a tendency towards a certain re- 
sult ' is understood to mean ' the existence of such a state of 
things that that result may be expected to take place.' Now 
it is in these two senses that the word is used in the two prem- 
ises of the argument in question. But in this latter sense, the 
earth has a greater tendency to remain in its orbit than to fly 
off from it ; man has a greater tendency to stand erect than to 
fall prostrate ; and, (as may be proved by comparing a more 
barbarous with a more civilized period in the history of any 
country,) in the progress of society, subsistence has a tendency 
to increase at a greater rate than population. In this country 
[Great Britain], for instance, much as our population has in- 
creased within the last five centuries, it yet bears a far less 
ratio to subsistence (though still a much greater than could be 
wished) than it did five hundred years ago." 

It is of this ambiguous meaning of the word tendency, that 
the Malthusians avail themselves, first, when they are pressed 
by argument and by the statement of facts which are irrecon- 
cilable with their hypothesis, and, secondly, when they wish 
to apply that hypothesis to the explanation of social phenom- 
ena at the present day. In the former case, they intrench 
themselves in a naked statement of the fact, common alike to 
the animal and the vegetable kingdoms, that each species tends 
to multiply itself according to the terms of a geometrical pro- 
gression, doubling itself in as short a time, and with as much 
ease, whether the number of individuals in the species be ten, 
or ten millions ; — a statement which no one will think of im- 
pugning, though it affords no more ground of alarm than the 
kindred statement, that the earth has a tendency to fly off from 
its orbit at a tangent, or that man tends to fall prostrate. No 
sane person expects, in either of these cases, that the tendency 



154 THE MALTHITSIAN THEOKY OF POPULATION. 

will be carried out, or practically exemplified. Bat in the sec- 
ond instance, when left to themselves, in their attempt to educe 
from their doctrine an explanation of the misery of the work- 
ing classes in Great Britain and Ireland, and of the causes of 
the depression of wages, the Malthusians use the word ten- 
dency to denote " such a state of things that the result (over- 
population and consequent misery) may be either immediately 
expected, or declared to have already taken place." 

In this last case, they may be met by the covmter statement 
that there is no such tendcnct/, — that is, no instance can be ad- 
duced in which the privations or the misery of a people may 
be fairly ath-ibuted to their numbers having outgrown their 
supply of food. History does not furnish one ; reason and re- 
ligion alike declare such an event to be impossible. In truth, 
the population of the whole earth has increased very slowly, 
some tribes, races, and nations wasting away, while others 
flourish and multiply ; and the excess of the increase in the lat^ 
ter case over the diminution in the former one is an almost in- 
appreciable quantity, when compared with the whole number 
of mankind. It would be difficult to prove that the world is 
more populous now than it was a hundred years ago ; the Eu- 
ropeans, it is true, are considerably more numerous ; but the 
Asiatics and Africans have probably diminished in number, 
and the native tribes of America — once reckoned at sixteen 
millions in only the northern half of the continent — have al- 
most entirely dwindled away. It is certain that the earth is 
not yet peopled uj) to the hundredth part of the number which 
it might supply with abundant food; and judging from the 
past only, or from what experience, oiu* only safe teacher on 
such a subject, declares to be probable, its population could 
not multiply a hundred-fold in less than thousands of years. 

The INIalthusian is certainly bound to maintain, that the 
number of mankind is now considerably greater than it was in 
the middle of the ninth century. But he will not venture to 
assert that they are now less abundantly supplied with food. 
Nay, he will be obliged to admit, that the countries in which 
the population has advanced most rapidly are precisely those 
which are now most abundantly supplied with the necessaries 
of life. Practically, tiien, the experience of the last thousand 
years has proved, that subsistence has a " tendency " to outrun 



THE LAAV OF POPULATION. 155 

population, which is just the reverse of the proposition of Mal- 
thus. Thus it must always be, so long as the earth yields much 
less than it is capable of producing ; for, in this case, all that is 
needed to develop its latent capacities is an additional num- 
ber of hands to be devoted to agriculture, each one of whom 
must produce more than is necessary for his own sustenance, 
and must thus increase the surplus of necessaries which are 
seeking for a market. I have already endeavored to prove 
that the agricultural population of this country — which em- 
braces two thirds of the freemen, and, if the slaves be added, 
more than three fourths of the whole number — is excessive ; 
that the surplus of grain and other produce of the earth re- 
maining for exportation is consequently too great, and its price 
abroad is unreasonably diminished; that a greater value in 
commodities might be obtained for a smaller quantity sent 
abroad ; and that the persons thus set free from the cultivation 
of the earth might be more profitably employed in manufac- 
tures, in which the whole product of their toil, which, as skilled 
labor, would command a higher recompense, would be an ad- 
dition to the present stock of national wealth. 



CHAPTER XII. 

THE PRINCIPLES WHICH REGULATE THE GROWTH OF POPULATION. 

Having briefly considered the doctrine of Malthus, I propose 
in this chapter to examine the true theory of population, to in- 
quire into the circumstances which govern its increase and dis- 
tribution. The true law of the increase of numbers in a civil- 
ized society is not hard to find, though it is difficult to express 
all the modifications that it undergoes from a change of cir- 
cumstances. The consideration which affects most strongly 
the inclination of people to labor and to save, and thus fur- 
nishes the chief stimulus for the accumulation of capital, also 
regulates in a great degree their tendency to increase in num- 
ber. It is natural that it should be so; other things being 



156 THE LAW OF POPULATION. 

equal, a man's condition as married or single, and the size of 
his family, are decisive of his worldly fortune. If his ambition 
is awakened by a fair prospect of the attainment of riches and 
consequent advancement in society, he will become prudent 
not only in his expenditures, but in contracting any relations 
which may become a burden to him, — which may impede his 
efforts to rise, and may even tend to depress him in the world. 
In a normal state, then, the inclination of people to marry is 
controlled by their opinion of the effect which marriage will 
have upon their position in life. If they have no fears that the 
additional expense thus incurred will sink them to a lower 
rank in society, or interfere with their hopes of rising in the 
world, they will follow the impulse of natural aflfection and 
desire. 

The eldest son in a wealthy family, where the right of pri- 
mogeniture prevails, will marry because his future is secure ; 
whatever may happen, a fortune is seemed to him beyond the 
effects even of his own imprudence. The miserable laborers 
on his estate, who do not taste meat more than once in a 
month, will marry because their future is secured in another 
way : they have touched bottom ; nothing can sink them in 
the world, and no degree of prudence or self-denial can ever 
raise them above a laborer's estate. Their unhappy children, 
it is true, may starve, or die of diseases induced by insufficient 
or improper food ; and if the theory of Malthus were true, this 
consideration would often operate to deter them from mar- 
riage, for they are the only class who may be said to have the 
fear of starvation directly before their eyes. But excessive 
misery creates recklessness and despair; they who have no 
hope or fear, cannot be expected to deny themselves the only 
gleam of comfort or alleviation of wretchedness of which their 
miserable state is capable. 

The younger sons in noble or wealthy famihes, if the patri- 
mony falls exclusively to the eldest, generally remain single, or 
marry late in fife, as an early connection of this sort would be 
certain degradation ; at any rate, they could not maintain the 
style of living to which they have been brought up. As the 
marriage of only one person out of a family cannot do more 
than keep up the number in the class to which they belong, 
and often may not effect even that, these families constantly 



THE LAW OF POPULATION, 157 

tend to die out ; and if it were not for promotions to their rank 
from the middle classes, the upper orders of society would 
gradually disappear. Of the 216 Barons who now sit in the 
English House of Lords, the peerage of all but 30 has been cre- 
ated since 1711 ; and 127, or considerably more than half of the 
whole number, have been admitted to the peerage since 1800. 
Royal families are still more prone to die out than the families 
of noblemen ; from the line of succession to the English throne, 
the families of the Plantagenets, the Tudors, and the Stuarts 
have already disappeared ; and the house of Brunswick, saving 
that branch of it the title of which is transmitted through a fe- 
male, exists by a very slender tie, and will probably soon be 
extinct. George III. had seven sons, four of whom died with- 
out issue admitted to be legitimate by English law ; and the 
three who married and had issue, left but five children in all, 
only two of whom are sons. The history of several other royal 
families in Em-ope is of a similar character ; but the principle 
is, perhaps, most strikingly exemplified among the landed gen- 
try of England, whose continued and increasing opulence is 
chiefly to be attributed to this cause ; for the diminution of 
their numbers, of course, tends to the concentration of their 
estates. 

In the intermediate conditions of life, the frequency of mar- 
riages still depends on the same rule, though its operation is 
affected by the general circumstances of the country, and by 
the particular position of individuals. In a newly settled re- 
gion, children are a help to the parents' advancement, because 
labor is so valuable ; hence the rapid advance of population in 
the frontier States of our own Union, an advance -which immi- 
gration alone does not account for, though a considerable part 
of it is certainly attributable to this latter cause. In a more 
thickly populated country, children are a hinderance, from the 
difficulty of establishing them in an equal position of life with 
then- parents. But even in this case, those who are in easy 
circumstances will marry, while those who can but just main- 
tain themselves in the condition of life in which they were born 
wiU often remain single. This last case is that of the peas- 
antry of many countries of Continental Em-ope, who cultivate 
then- own little farms, and are perpetually admonished by the 
moderate size of their properties, that any increase of their 
14 



158 



THE LAW OF POPULATION. 



number must lead, not indeed to starvation, but to the forfeit- 
ure of their position as land-owners. 

Thus, in Switzerland, which is, in the main, a country of 
small proprietors, the population increases so slowly, that, at 
its present rate, it is estimated that it would not double itself 
in less than 227 years. In France, where also the land is cut 
up into very small estates, but where the peasantiy are less 
prudent, less disposed to make calculations respecting the fu- 
ture, than the Swiss, the estimated period of duplication varies 
from 115 to 138 years, " Denmark," says Mr. Laing, " being 
altogether agricultural, not manufacturing, except for the home 
use of her own agricultural consumers, her population increases 
very slowly, and keeps very far behind the means of subsist- 
ence from the products of the soil. She is a living evidence 
of the falsity of the theory, that population increases more rap- 
idly than subsistence where the land of a country is held by 
small working proprietors. There are large estates and small 
all over the country, estates of noblemen and gentlemen, and 
estates of peasant proprietors. The greater part of the land of 
Denmark is in the hands of the latter class. As a class, they 
are wealthy." 

The general effect in the Old World, then, may be thus 
stated, — that the numbers of the poor increase most rapidly, of 
the middle classes more slowly, and of the upper or wealthier 
ones, either not at all, or by a fraction so small that the effect 
would hardly be perceptible. This is strikingly illusti'ated in 
Sweden, where the census and the registration of births, 
deaths, and marriages are taken with reference to the division 
of the people into three classes. The official retm-ns for 1835 
give the following results. The yearly excess of bu-ths over 
deaths among the persons reckoned as belonging to the class 
of the nobility was only one for every 1,508. For those who 
are described as " persons of property and station," the yearly 
excess was one for every 640 ; while for the peasantry it was 
one for every 107. In other words, the rate of increase for the 
peasantry is nearly six times greater than that of the middle 
class, and over fourteen times greater than that of the nobles. 
Among the nobility, 13 per cent of the married males were but 
twenty-five years of age, or under ; among the peasantry, 37 
per cent were married at this early age. In wretched Ireland, 



THE LAW OF POPULATION. 159 

more than one half of the males who are over seventeen years 
of age are married. Thus do the laws of nature itself operate 
against a permanent or hereditary aristocracy. 

If we compare different countries with each other, we still 
find, in every case, that the lowest classes increase most rap- 
idly, and that the rate of increase diminishes as we ascend in 
the social scale. But we also observe, that this law becomes 
more prominent and conspicuous, according as these social 
distinctions are more fixed and unalterable, — that is, as they 
approach the nature of castes ; and also, it becomes more 
marked in proportion to the degree of poverty and wretched- 
ness of the lowest class. Thus, we can discern the operation 
of the law even in this country, where it is matter of common 
observation, that laborers, mechanics, small tradesmen, and 
farmers generally marry at an early age, and have large fami- 
lies ; while educated men, members of the professions, and 
sons of wealthy parents often defer " establishing themselves in 
life," as the phrase goes, till a comparatively late period. But 
owing to the general well-being of all classes here, and to the 
frequency and rapidity of transitions from one class to another, 
these differences are less obvious than in the Old World. Pop- 
ulation here generally advances in a broad wave, coming from 
all divisions of society. But that the " preventive check" is not 
inoperative here in the United States, with all our advantages 
of broad and fertile territories, appears from the fact brought 
to light by the registration act in Massachusetts, that the aver- 
age age of males at the time of first marriage here is twenty- 
five years and nearly nine months, while in England it is but 
twenty-five years and a httle over five months. The average 
age of all the males who contracted marriages in Massachu- 
setts during the four years 1844-48, (either first or subsequent 
marriages,) was 28.27 years ; the average age of all the males 
marrying in England was 27.30 ; so it appears that English- 
men marry, on an average, when about one year younger than 
the men who marry in Massachusetts. Of all the males who 
married in Massachusetts, only 1.6 per cent were under 20 
years of age ; in England, 2.6 per cent married at this early 
age. Obviously, then, if females did not marry here at an 
earlier age than in England, and if marriages were not more 
general and more fruitful, our population would not advance 



160 THE LAAV OF POPULATION. 

more rapidly than the English population ; and in fact, we find 
from the registration returns, that females in Massachusetts are 
married two years earlier than females in the mother country. 

In France, where the land is minutely divided, and the peas- 
antry are vastly better off than in England, but where each 
person is far more strongly chained to that class of society in 
which he is born than is the case in the United States, the rate 
of increase of the population, for ten years, is only 5 per 
cent, while in England it is 15 per cent, and in Connaught, 
the sink of Irish misery and degradation, from 1821 to 1831, 
it was as high as 22 per cent. In the province of Ulster, the 
rate is 14, while in the county of Donegal, it rises to 20 per 
cent. " And this is precisely the county which official reports 
represent as forming an exception to the general condition of 
Presbyterian Ulster, and affording an instance of poverty little 
less extreme than that of Connaught. In the latter province, 
we find Galway and Mayo, notoriously the two most destitute 
counties, exhibiting, the one an increase of 27, and the other 
of 25 per cent." This rate, it may be remarked, is rather 
higher than the rate of increase, excluding the effects of immi- 
gration, in the United States ; so that the two extremes, of 
general misery and of general well-being, produce very nearly 
the same effect on the movement of the population, — a fact 
utterly irreconcilable with the theory of Malthus. 

The probable result for our own country may now be very 
clearly seen. So long as land continues abundant and cheap, 
and the wages of labor high, so long the population will con- 
tinue to increase with great rapidity. Barbarous tribes will 
die out before its advancing wave, and the desert will be peo- 
pled. But as the country fills up, and the wages of labor fall, 
it will become more difficult to rise from one class of society 
to another, and the rate of increase will diminish. When the 
land becomes as thickly settled as Belgium now is, — a result 
which centuries will be required to accomplish, — the popula- 
tion will advance as slowly as it now does in Belgium. I see 
nothing in this prospect which need alarm even those who are 
most apt to be apprehensive of the future. I see no signs of 
what the Malthusians most dread, — the over-population of 
the earth. 

Mr. Senior has very happily illustrated the truth, that the 



THE LAW OF POPULATION. 161 

preventive check upon marriages is the fear, not of lacking the 
necessaries of life, or of positive starvation, but of being de- 
prived of those comforts and enjoyments, of falling below that 
scale of expenditure, which custom has marked out as appro- 
priate for every condition in life, or every rank in the social 
scale. Hence it is, that in countries abundantly supplied with 
food and other mere necessaries of life, population often ad- 
vances more slowly than in more populous lands, where pov- 
erty prevails, and large classes of the people are subject to 
severe privations. I borrow the whole passage from Mr. Sen- 
ior, though it is of considerable length, as it gives a clear state- 
ment of some useful distinctions. 

" Though an apprehended deficiency of some of the articles 
c^ wealth is substantially the only preventive check to the in- 
crease of population, it is obvious that fear of the want of dif- 
ferent articles operates, with aU men, very differently ; and 
even that an apprehended want of the same article will affect 
differently the minds of the individuals of different classes. An 
apprehended want of corn would produce on the minds of all 
Englishmen a very different effect from an apprehended want 
of silk. An apprehended want of butcher's meat would affect 
very differently the minds of Englishmen of different classes. 
It appears to us, therefore, convenient to divide for this pur- 
pose the articles of wealth into the three great classes of Neces- 
saries, Decencies, and Luxuries, and to explain the different 
effects produced by the fear of the want of the articles of 
wealth falling under each class. We must begin, however, by 
stating, as precisely as we can, what we mean by the words 
Necessaries, Decencies, and Luxuries ; terms which have been 
used ever since the moral sciences first attracted attention, but 
with little attention to precision as to consistent use. 

" It is scarcely necessary to remind our readers that these are 
relative terms, and that some person must always be assigned 
with reference to whom a given commodity or service is a 
Luxury, a Decency, or a Necessary. 

" By Necessaries, then, we express those things, the use of 
which is requisite to keep a given individual in the health and 
strength essential to his going through his habitual occupa- 
tions. 

" By Decencies, we express those things which a given indi- 
14* 



162 THE LAW OF POPULATION. 

vidual must use in order to preserve his existing rank in so- 
ciety. 

" Everything else of which a given individual makes use, or, 
in other words, all that portion of his consumption which is 
not essential to his health and strength, or to the preservation 
of his existing rank in society, we term Luxury. 

" It is obvious that, when consumed by the inhabitants of 
different countries, or even by different individuals in the same 
country, the same things may be either luxuries, decencies, or 
necessaries. 

" Shoes are necessaries to all the inhabitants of England. 
Our habits are such, that there is not an individual whose 
health would not suffer from the want of them. To the low- 
est class of the inhabitants of Scotland, they are luxuries ; cus- 
tom enables them to go barefoot without inconvenience and 
without degradation. When a Scotchman rises from the 
lowest to the middhng classes of society, they become to him 
decencies. He wears them to preserve, not his feet, but his sta- 
tion in life. To the liigher class, who have been accustomed 
to them from infancy, they are as much necessaries as they are 
to all classes in England. To the higher classes in Turkey, 
wine is a luxury and tobacco a decency. In Europe, it is the 
reverse. The Turk drinks and the European smokes, not in 
obedience, but in opposition, both to the rules of health and to 
the forms of society. But wine in Europe and the pipe in 
Turkey are among the refreshments to which a guest is enti- 
tled, and which it would be as indecent to refuse in the one 
country as to offer in the other. 

" It has been said that the coal-heavers and lightermen, and 
some others among the hard-working London laborers, could 
not support their toils without the stimulus of porter. If this 
be true, porter is to them a necessary. To all others, it is a 
luxury. A carnage is a decency to a woman of fashion, a ne- 
cessary to a physician, and a luxury to a tradesman. 

" The question, whether a given commodity is to be consid- 
ered as a decency or a luxury, is obviously one to which no 
answer can be given, unless the place, the time, and the rank 
of the individual using it be specified. The dress which in 
England was only decent a hundred years ago, would be al- 
most extravagant now, while the house and furniture which 



THE LAW OF POPULATION. 163 

now would afford merely decent acccommodation to a gentle- 
man, would then have been luxurious for a Peer. The causes 
which entitle a commodity to be called a necessary are more 
permanent and more general. They depend partly upon the 
habits in which the individual in question has been brought 
up, partly on the nature of his occupation, on the lightness or 
the severity of the labors and hardships that he has to undergo, 
and partly on the climate in which he lives. Of these causes 
we have illustrated the two first by the familiar examples of 
shoes and porter. But the principal cause is climate. The 
fuel, shelter, and raiment, which are essential to a Laplander's 
existence, would be worse than useless under the tropics. 
And as habits and occupations are very slowly changed, and 
climate suffers scarcely any alteration, the commodities which 
are necessary to the different classes of the inhabitants of a 
given district may, and generally do, remain for centuries un- 
changed, while their decencies and luxm'ies are continually 
varying. 

" Among all classes, the check imposed by an apprehended 
deficiency of mere luxuries is but slight. The motives, per- 
haps we might say the instincts, that prompt the human race 
to marriage, are too powerful to be much restrained by the 
fear of losing conveniences unconnected with health or station 
in society. Nor is population much retarded by the fear of 
wanting merely necessaries. In comparatively uncivilized 
countries, in which alone, as we have already seen, that want 
is of familiar occurrence, the preventive check has little opera- 
tion. They see the danger, but want prudence and self-denial 
to be influenced by it. On the other hand, among nations so 
far advanced in civilization as to be able to act on such a mo- 
tive, the danger that any given person or liis future family 
shall actually perish from indigence, appears too remote to af- 
ford any general rule of conduct. 

" The great preventive check is the fear of losing decencies, 
or, what is nearly the same, the hope to acquire, by the accu- 
mulation of a longer celibacy, the means of purchasing the 
decencies which give a higher social rank. When an English- 
man stands hesitating between love and prudence, a family 
actually starving is not among his terrors ; against actual want, 
he knows that he has the fence of the poor-laws. But how- 



164 THE THEORY OF RENT. 

ever humble his desires, he cannot contemplate without anxi- 
ety a probability that the income which supported his social 
rank while single, may be insufficient to maintain it when he 
is married ; that he may be unable to give to his children the 
advantages of education which he enjoyed himself; in short, 
that he may lose his caste. Men of more enterprise are in- 
duced to postpone marriage, not merely by the fear of sinking, 
but also by the hope that, in an unencumbered state, they may 
rise. As they mount, the horizon of their ambition keeps re- 
ceding, until sometimes the time has passed for realizing those 
plans of domestic happiness which probably every man has 
formed in his youth."* 

It is this last cause, undoubtedly, which makes the period 
of maiTiage for males here in Massachusetts somewhat later 
than it is for males in Great Britain. 



CHAPTER XIII. 



THE THEORY OF RENT. 



The entire science of English Political Economy may be 
said to be built upon three leading theories ; — that of Adam 
Smith concerning free trade, that of Malthus in regard to pop- 
ulation, and that of Ricardo in regard to rent. They are inti- 
mately connected with each other ; and a full appreciation of 
the mixture of truth and falsehood which they contain, would 
tend to clear the science of its local, English character, and to 
fit it for universal acceptance and utility. Having considered 
the first incidentally, and the second at some length, we may 
pass to an examination of Ricardo's doctrine ; and in explain- 
ing it I shall follow the method, and, to some extent, the phra- 
seology, of its most distinguished advocates. 

The permanent or average value of everything not limited 
in quantity depends on the cost of its production, or on the 



Senior's Political Economy, (ed. 1850,) pp. 36-38. 



THE THEORY OF RENT. 165 

amount of labor required to produce it. But the cost of pro- 
ducing some commodities cannot always be reduced to the 
same uniform standard; a few persons may enjoy certain facil- 
ities, some peculiar implements or patented machinery, which 
other persons cannot obtain, and by the aid of which, they can 
produce the article at less cost, or with a smaller amount of la- 
bor. They cannot, however, thus produce enough to satisfy 
the whole demand ; and therefore, other persons must produce 
some at the expense of more labor. In such a case, the price 
of the commodity will be determined by the cost of that por- 
tion ivhich is produced with the greatest difficulty ; for, unless 
the price indemnified these producers, they would give up the 
business, and the necessary amount of the article could no 
longer be had. But the price having risen to this point, the 
persons producing the article more easily, by the aid of a 
machine or implements of which they have a monopoly, would 
receive an extraordinary profit. This whole extra profit may 
be called rent, a phrase which obviously includes the profits of 
a patentee of a useful machine, as well as those of a land- 
holder. 

The produce of land, according to this theory, is obtained 
under circumstances precisely analogous to those here sup- 
posed. The supply of grain or cattle may be indefinitely 
increased, by employing more capital and labor ; but it can- 
not always be increased in the same propo?iion to the capital 
and labor expended. In the manufactm-e of cottons, woollens, 
and silks, double the capital, and you will usually double the 
amount produced. But in agriculture, this is not the case. 
The most eligible land is first taken up, — either that which is 
most fertile, or that which is nearest to market, or both. We 
wiU call this portion land of the first class. For a while, this 
produces enough to satisfy the demand. But the population 
increases, more grain is called for, and, as there is no more land 
of the first class to be had, the producers are obliged to take 
land of the second class, either that which is less fertile, or far- 
ther from market, or both ; the demand having previously out- 
run the supply, the price has risen enough to remunerate them 
for employing capital and labor on this less promising soil. 
For a whUe, this additional supply suffices ; but then popula- 
tion again advances, the demand for food is increased, the 



166 



THE THEORY OF RENT. 



price rises again, and, as a necessary consequence, land of the 
third class is brought into cultivation. And so on, indefi- 
nitely. At each step, there is a necessary enhancement of 
price, and therefore of profit, to those who work the land of 
higher quality, or of more easy access. The price of the gi-ain 
and cattle which are brought to market must always be high 
enough to pay those who work the poorest land in use ; other- 
wise, they would quit the employment, and the land would 
fall out of cultivation. But this price, of course, will give a 
larger profit to those who hold the land of the next higher 
class, and a still larger one to the owners of land of the first 
class. And as still inferior lands come into use, these profits 
must become yet larger. The result is, that the amount of 
rent for land must always depend on the degree of superiority 
of that land over the least fertile, or least eligible, ground which 
is cultivated at all. 

By the original constitution of nature, land is of various de- 
grees of productiveness. One acre, with a certain quantity of 
labor bestowed upon it, will yield forty bushels of wheat ; an- 
other acre, with the same amount of labor, will yield but thirty 
bushels ; a third acre, still requiring the same labor, gives but 
twenty bushels. Now, suppose that these three acres of land 
constituted the whole stock of a family of persons living upon 
an island of this extent, and wholly cut ofT from intercourse 
with the rest of the world, by the intervention of a wide waste 
of ocean, and by their lack of ships or boats. If this family 
consisted of but five persons, we may suppose that one acre 
would furnish them grain enough, and, of course, they would 
choose the most productive land. There being land of this 
quality enough for all, no portion of it woiild yield any rent. 
But if three persons should be added to their number, there 
would be a necessity of cultivating the next best acre of land ; 
and to the persons undertaldng to cultivate it, it would 
amount to the same thing whether they took without rent the 
land yielding thirty bushels to the acre, or paid a rent, equal 
in value to ten bushels of gi'ain, for the land producing forty 
bushels to the acre. The increase of population, then, render- 
ing it necessary to have recourse to land of inferior fertility, 
would cause land of the fii-st class to pay rent ; and this rent 
would be exactly proportioned to its degree of superiority over 



THE THEORY OF RENT. 167 

the worst land in cultivation, which yields no rent. A farther 
accession of tliree individuals would oblige the community to 
tiU the third acre, which yields but twenty bushels ; and one 
might have his choice between having this land without rent, 
or paying ten bushels a year for land of the next best quality, 
or twenty bushels a year for the most fertile spot. The result 
in either case would be the same to him. Always the worst 
land in cultivation pays no rent ; and aU other land pays rent 
in proportion to the degree of its superiority over this poorest 
land. 

Natural fertility is but one of the circumstances that give 
value to land, or cause it to pay rent ; nearness to market, or 
any other natural quality, operates in precisely the same way. 
If aU the land produces the same quantity to the acre, and if 
the produce of one acre can be sold on the spot, while it costs 
the value of ten bushels of grain to carry the produce of the 
second acre to market, and of twenty bushels to transport that , 
of the third acre, then the first acre will bear a rent of twenty 
bushels, the second a rent of ten bushels, and the third no rent 
at all, because it produces but twenty bushels, and the value 
of this product is all consumed in transporting it to market. 
The increased demand of towns, occasioned by the increase of 
their population, not only tempts the cultivators in their vicin- 
ity to improve their lands more highly, but frequently causes 
large portions of their supplies to be brought from a great dis- 
tance. Hence it sometimes happens, that the advantage of 
vicinity more than counterbalances the disadvantage of com- 
parative barrenness, so that lands of inferior fertility, in the 
immediate environs of a large town, yield a considerable rent, 
while much richer land, at a distance from good markets, 
yields little or perhaps no rent. As vicinity to a town is a 
cause of rent, so vicinity to a road, navigable river, or canal, 
by diminisliing the expense of carriage to some great market, 
may have a similar effect. 

Observe, also, that the theory still holds good, whether the 
increase of population constrains us to take poorer land, hith- 
erto neglected, into cultivation, or to expend more capital and 
labor upon the land already in tillage, with a view of increas- 
ing its product. For the additional capital thus invested will 
not yield a return proportionally great with that capital which 



168 THE THEORY OF RENT. 

was first employed. K, for instance, a thousand dollars of 
capital spent upon a farm will cause it to yield at the rate of 
thirty bushels to the acre, the expenditure of a second thou- 
sand dollars upon it may raise the crop, perhaps, to forty bush- 
els per acre ; but it certainly will not double the crop, or make 
the yield to be sixty bushels, as it ought to do, if the second 
application of capital were equally remunerative with the first. 
Then the second application of capital will not be made till 
the increase of population has caused the price of grain to rise 
so high, that this second thousand dollars will produce as large 
profits as capital applied in other ways. And when tliis sec- 
ond thousand dollars will yield ordinary profits, it is obvious 
that the first thousand dollars, applied under circumstances 
much more advantageous, will yield much more than the ordi- 
nary profits. The difference between these two rates of profit 
is the rent of the land. Thus, always, just as there are more 
mouths calling for more food, either poorer land must be taken 
into cultivation, or more capital must be applied with perpetu- 
ally diminishing returns, or at rates of profit growing succes- 
sively less and less. 

It is true, as the theory admits, that the necessity of having 
recourse to inferior lands, or of applying more capital with 
constantly diminishing returns, is postponed by the improve- 
ments that are made, from time to time, in the tools and pro- 
cesses of agriculture, which enable us to obtain more food from 
the same quantity of land without a proportionate increase of 
capital or industry. But the evil day is thus only postponed, 
not entirely removed. It is impossible that agricultural im- 
provements should keep pace for any long time with the in- 
crease of the population ; for they are limited in their nature 
and extent, while the prolific power of the human race is un- 
bounded. These improvements also stimulate the increase 
of numbers, and thus, in one way, tend to increase the evil, 
which they do but partially check in another. " Improvements 
in the construction of farming implements," says McCuHoch, 
" the discovery of more efficient manures, the introduction of 
more prolific crops, and of improved systems of management, 
increase, in a high degree, the productiveness of the soil, and 
proportionally reduce the price of raw produce ; but a fall of 
price, though permanent in manufactm*es, is only temporary in 



THE THEORY OF RENT. 169 

agriculture. When the price of corn is reduced, all classes ob- 
tain greater quantities than before in exchange for their prod- 
ucts or their labor ; hence the rate of profit, and consequently 
the accumulation of capital, are both increased ; and this in- 
crease, by causing a greater demand for labor and higher 
wages, leads, in the end, to an increase of population, and, 
consequently, to a further demand for raw produce, and an ex- 
tende(> cultivation. Agricultural improvements obviate, some- 
times for a lengthened period, the necessity of having recourse 
to inferior soils ; stUl, however, their influence in this respect 
cannot be permanent. The stimulus which they at the same 
time give to population, and the natural tendency of mankind 
to increase up to the means of subsistence, are sure, in the 
long run, to raise prices, and, by forcing recourse to poor lands, 
rents also." 

Mr. Malthus has ingeniously illustrated this theory of rent. 
" The earth," he says, " has been sometimes compared to a 
vast machine, presented by nature to man for the production 
of food and raw materials ; but to make the resemblance more 
just, as far as they admit of comparison, we should consider 
the soil as a present to man of a great number of machines, all 
susceptible of continued improvement by the application of 
capital to them, but yet of very different original qualities and 
powers. This great inequality in the powers of the machinery 
employed in procuring raw produce, forms one of the most re- 
markable features which distinguish the machinery of the land 
from the machinery employed in manufactures. 

" When a machine in manufactures is invented which will 
produce more finished work with less labor and capital than 
before, if there be no patent, or as soon as the patent is over, 
a sufficient number of such machines may be made to supply 
the whole demand, and to supersede entirely the use of aU the 
old machinery. The natural consequence is, that the price is 
reduced to the price of production from the best machinery ; 
and if the price were to be depressed lower, the whole of the 
commodity would be withdrawn from the market. 

" The machines which produce corn and raw materials, on 
the contrary, are the gifts of nature, not the works of man ; 
and we find by experience that these machines have very dif- 
ferent qualities and powers. The most fertile lands of a coun- 
15 



170 THE THEORY OF RENT. 

try, those which, like the best machinery in manufactures, 
yield the greatest products with the least labor and capital, 
are never found sufficient to supply the effective demand of an 
increasing population. The price of raw produce, therefore, 
naturally rises, till it becomes sufficiently high to pay the cost 
of raising it with inferior machines, and by a more expensive 
process ; and as there cannot be two prices for corn of the same 
quality, all the other machines, the working of which requires 
less capital compared with the produce, must yield rents in 
proportion to their goodness. Every extensive country may 
thus be considered as possessing a gradation of machines for 
the production of corn and raw materials, including in this 
gradation not only all the various qualities of poor land, of 
which every large territory has generally an abundance, but 
the inferior machinery which may be said to be employed 
when good land is further and further forced for additional prod- 
uce. As the price of raw produce continues to rise, these in- 
ferior machines are successively called into action ; and as the 
price of raw produce continues to fall, they are successively 
thrown out of action. The illustration here used serves to 
show at once the necessity of the actual price of corn to the 
actual produce, and the different effect which would attend a 
great reduction in the price of any particular manufacture, and 
a great reduction in the price of raw^ produce." 

This is a brief, but, I hope, suflficiently clear and fair expo- 
sition of Ricardo's celebrated theory of rent. I call it Ricar- 
do's theory, though aware that it was first promulgated by Dr. 
Anderson, of Scotland, as early as 1777. It then attracted 
hardly any notice, and was subsequently forgotten. It was 
afterwards rediscovered, almost simultaneously, by Su* Edward 
West and Mr. Malthus, while Mr. Ricardo has most success- 
fully developed it, applying it to the theory of profits, and to 
the solution of many other problems in economical science. 
Malthus was certainly put upon the track of it by his own the- 
ory of population, of which it is an obvious complement. As 
it might be objected to the Malthusian doctrine, that the dan- 
ger which it contemplated was prospective and distant, the 
world certainly not being over-populated as yet in all its parts, 
this theory of rent comes in to fill up the deficiency in our her- 
itage of woe, and to prove that the increase of population, to 



THE THEORY OP RENT. 171 

which the human race is always tending, is always an evil, — 
that, for every new life which is created, some new restraint, 
privation, or loss is imposed upon those already in being, 
" Granted," these prophets of evil may exclaim, " that there is 
not as yet any absolute deficiency of food ; yet every birth 
tends to raise the price of the stock of sustenance which we 
have, because it obliges us to cultivate still poorer land, and to 
apply labor and capital with constantly diminishing returns, — 
or to work at smaller wages, and apply capital at smaller 
profits." * Mr. Mill states the legitimate inference from these 
two theories of population and rent clearly and strongly, when 

* Dr. Chalmers actually argues in this manner, and with characteristic earnest- 
ness. " It is thus," he says, " that, for the continued pressure of the world's popu- 
lation on its food, it is far from necessary that the food should have reached that 
stationaiy maximum beyond which it cannot be carried. It is enough for this pur- 
pose, that the limit of the world's abundance, though it does recede, should recede 
more slowly than would the limit of the world's population. A pressure, and that a 
very severe one, may be felt for many ages together, from a difference in the mere 
tendencies of their increase. The man who so runs as to break his head against a 
wall might receive a severe contusion, even to the breaking of his head, if, instead 
of a wall, it had been a slowly retiring barrier. And therefore we do not antedate 
matters by taking up now the consideration of Malthus's preventive and positive 
checks to population. There is scarcely a period, even in the bygone history of the 
world, when the former checks have not been called for, and the latter have not been 
in actual operation. To postpone either the argument or its application till the 
agriculture of the world shall be perfected, is a most unpractical, as well as a most 
intelligent view of the question ; — for long ere this distant consummation can be 
realized, and even now, may the obstacle of a slowly retiring limit begin to be felt. 
The tendency of a progressive population to outstrip the progressive culture of the 
earth, may put mankind into a condition of straitness and difficulty, — and that for 
many generations before the earth shall be wholly cultivated Let the pop- 
ulation increase to the extent of its own inherent power of increase, and it would 
force the existing limit of cultivation ; or, in other words, flow over upon a soil in- 
ferior to that which had last been entered upon, or inferior to that which, at the then 
rate of enjoyment, could do no more than feed the laboring cultivators and their sec- 
ondaries [the manufacturers who supply them with tools and wrought goods]. The 
consequence of such a descent is inevitable. The rate of enjoyment must fall. The 
agricultural workmen must either submit to be worse fed than before, or, parting 
with so many of their secondaries, they must submit to be worse clothed, or lodged, 
or furnished than before. The likelihood is, that they would so proportion their 
sacrifices as to suffer in both these ways ; — and so there behoved to be a general 
degradation of comfort in the working classes of society. There is, to be sure, an- 
other way in which they might possibly extract from the more ungrateful soil, on 
which they had just entered, the same plenty as before. They may submit to harder 
labor, by putting forth a more strenuous husbandry on the inferior land ; but this 
too is degradation. Whether by an increase of drudgery, or an increase of destitu- 
tion, there may, in either way, be a sore aggravation to the misery of laborers." — 
Chalmers's Political Economy, Vol. I. pp. 35-37. 



172 THE THEORY OF RENT. 

he says, that " a greater number of people cannot, in any 
given state of civilization, be collectively so well provided for 
as a smaller." 

I do not accept these gloomy views of the course of nature 
and Providence. I do not believe that any increase in the 
number of the civilized, Christian inhabitants of the earth is 
an evil, or that it entails any evil upon coming generations. 
Recognizing the facts, which must be obvious to all, that the 
civilized nations of the earth are now steadily advancing in 
numbers, though with various degrees of rapidity, while the 
barbarous tribes are either stationary, or are dwindling away, 
some of them with fearful speed, I see in them the beneficent 
working of a great law of Providence, which is giving the 
earth to be the exclusive habitation of those who know how to 
develop its resources, and apply them to the noblest uses. The 
arts of peace, and the discovery of new means and appliances 
of civilization, are at least keeping pace with, if they do not 
outstrip, the actual increase of mankind in numbers. A nicely 
graduated principle of restraint, applied just where it is most 
needed, checks the undue multiplication of the race in certain 
localities, where the pressure of population on the means of 
subsistence just begins to be felt ; and this principle, mild and 
beneficent in its mode of operation, like all the general laws of 
Providence, must become universal in its effect, at that far dis- 
tant day in the lapse of ages, when, if ever, the earth shall be 
so fully stocked with happy human beings, that there shall not 
be room and sustenance for more. The social evils which un- 
questionably now exist, and which are traced by such econo- 
mists as Malthus, Ricardo, and McCulloch to an excess of 
population, appear clearly imputable to defective, unnatural, 
and unjust institutions of man's device, and admit of remedy 
without shaking the pillars of social order, or impiously calhng 
on God to send war, inundations, or pestilence, wherewith to 
scourge mankind into a sense of their duty to restrain their 
natural inclinations, and destroy the sources of domestic hap- 
piness. Having established these points against the doctrines 
and the calculations of Malthus, I proceed to show that there 
is nothing in this theory of rent which ought to shake our 
confidence in them. 

And first, I would call attention to the fact, that both these 



THE THEORY OF RENT. 173 

theories are of English origin, and were first suggested, as is 
obvious, by observation of those evils in the social condition 
of England, which only within the present century have be- 
come of crying magnitude. These evils have manifested them- 
selves in the only country in Europe in which all the land, the 
great food-producing machine, has come to be owned by so 
small a class, that the great body of the community seem to 
have no part or lot in it ; while, at the same time, those an- 
cient patriarchal and religious institutions, which certainly did 
much to mitigate the effects of an undue aggregation of landed 
property in the hands of a few, have entirely died out or been 
destroyed. It is the boast of the English, that the relations of 
vassal and lord, clansman and chieftain, serf and master, no 
longer exist among them. The English barons no longer sup- 
port each an army of retainers to be their followers in war, and 
to keep up their feudal state. English prelates and monks no 
longer dispense open-handed hospitality and charity at the 
gates of richly endowed monasteries. These institutions of 
the Middle Ages have been destroyed in England, root and 
branch ; but their fall has not, as in many parts of the Conti- 
nent, caused the landed property once aggregated in their sup- 
port to be parcelled out again, with great minuteness and some 
approach to equality, among those who were formerly main- 
tained by it in rude plenty, though not in peace or perfect free- 
dom. Feudal relations have been done away, but the magni- 
tude of feudal estates has not been diminished. The Highland 
chieftain has banished his clansmen from their hereditary pos- 
sessions and hereditary dependence on him, has compelled 
them to emigrate or starve, has turned his vast Highland es- 
tate into sheepwalks and deer-parks, and has himself become a 
wealthy English nobleman. A cool pecuniary calculation of 
profit and loss has induced him to take this step. The same 
motive has caused the great English landholders to depopulate 
their estates, driving the rural tenantry into the towns and 
manufacturing districts, where they must become operatives or 
paupers. The consequence of this aggregation of landed es- 
tates, and this mode of deriving the largest possible rent fi:om 
them, has been a fearful increase of pauperism, and a general 
apprehension lest the tax for the support of the poor should be- 
come so large as eventually to beggar the rich also. No won- 
15* 



174 THE THEORY OF RENT. 

der that any increase of the population should be deemed an 
evil, when it appears from the returns, that one tenth part of 
that population are legalized paupers ; and as not the same in- 
dividuals, in all cases, receive public relief each successive year, 
it is probable that as many as one sixth of the whole number 
of the people are, or have been, dependent on public charity. 

Systems and theories of political economy suggested by cir- 
cumstances so anomalous and peculiar as these, or contrived 
with a view to explain and justify them, are not likely to be 
applicable to other countries, or to contain many general truths. 
England is the only country in the world in which the labor- 
ing class is entirely dependent on the wages of hired labor ; on 
the Continent, in most instances, they have a small property 
on whicli they can subsist, though poorly, in seasons when 
they cannot obtain employment elsewhere for time not needed 
at home, so as to add to their scanty incomes a small amount 
received as wages. If they have not a little land which is 
entirely their own, they have a sort of prescriptive right to cul- 
tivate the land of others, on certain fixed terms, either as me- 
tai/ers, giving all the labor for a portion of the produce, or as 
feudal subjects bound to the soil, and having a right of main- 
tenance from it. Li neither case are they driven into the 
labor-market, as their only refuge from starvation, there con- 
stantly to depress wages by their frantic competition for em- 
ployment, or to give up the struggle in despair by throwing 
themselves upon compulsory public charity. 

Ricardo's theory of rent was discovered or invented with ref- 
erence to this anomalous state of things. It is an attempt to 
establish as a law of natiure the general fact, that an increase 
of the numbers of a people, under any circumstances, is an evil, 
because it creates an additional demand for food, which can 
only be met by having recourse to poorer or less advanta- 
geously situated soils, and by applying more labor and capital 
with constantly diminishing returns. It is abundantly confuted 
by facts, and can easily be shown to be unsomid in principle. 
The assertion of Mr. IVIill, " that a greater number of people 
cannot collectively be so well provided for as a smaller," be- 
comes absvnd when applied to an infant colony, established in 
a vast territory, on a virgin soil. Who can seriously maintain, 
that an increase of population is an evil in British Australia, 



THE THEORY OF RENT. 175 

or in the great valley of the Mississippi ? It might as well be 
said that the people of Ohio, Indiana, and "Wisconsin are 
straitened for want of room, as that their proportionate supply 
of food was lessened by the increase of their numbers. Among 
them, surely, it is apparent that an increase of population is an 
increase of productive power, and hence a proportionate in- 
crease of the surplus of grain and other articles of sustenance, 
which, after satisfying all their own wants in the amplest man- 
ner, they are able to send off to satisfy the wants of other 
nations. The average price of flour in Philadelphia market 
between 1800 and 1810, exceeded eight doUars a barrel ; from 
1810 to 1820, the average was about nine doUars. The popu- 
lation of this country in 1800 was but little over five millions ; 
in 1820, it was somewhat less than ten millions. It is now 
more than twenty-three millions. And is the nation, in conse- 
quence of this vast increase of numbers, less bountifully sup- 
pKed with food ? On the contrary, the price of flour and other 
bread-stuffs has greatly diminished, and we are supplying the 
world with them. The average price of flour for several years 
preceding 1853, was less than six dollars. 

Our average annual export of articles of food now probably 
exceeds thirty-five millions of dollars in value ; and in case of 
any failure of the crops in Europe, it could probably be raised 
to seventy-five millions, without materially lessening the enjoy- 
ments of the people of this country, or raising the price of grain 
to a point beyond the reach of the poorest class of the popula- 
tion. In 1847, the year of famine in Ireland, our export of 
bread-stuffs actually rose to nearly sixty-nine millions, and in 
1853, owing to a partial failure of the crops and to the Russian 
war in Europe, it was about sixty-six millions. Do these facts 
afford any evidence that the twenty-three millions, who now 
constitute the American nation, are not so well provided for as 
the five millions who occupied their place only fifty years ago ? 
Are they not rather a demonstration of the principle, that the 
increase of numbers is an increase of productive power, and a 
consequent proportionate increase of the means of subsistence, 
— of the necessaries, comforts, and luxuries of life ? 

But it may be said that America is an exceptional case, and 
that we have no right to argue from the fortunate circumstan- 
ces in which we are placed, to general conclusions which would 



176 THE THEORY OF RENT. 

be wholly inapplicable in other portions of the world. "We 
answer, that the facilities afforded by commerce now really 
connect all the civilized nations of the earth into one great 
community, the supply of all articles being made everywhere 
proportionate to the demand and to the ability to pay for 
them. Grain and other articles of provision are matters both 
of foreign and domestic traffic ; every country can obtain an 
abundance of them, though her own soil may be entirely bar- 
ren. Great Britain has no difficulty in obtaining a supply of 
cotton, though the cotton-plant will not grow in the British 
Isles. Grain and other provisions can be purchased even with 
greater facility than cotton and tobacco, or coffee and tea ; for 
these latter articles can be raised only in a few favored coun- 
tries, while the market of the whole world is open for the sale 
of food. In fact, the markets of New York and Liverpool 
now regulate each other; since the abrogation of the corn- 
laws, the price of grain cannot rise five per cent in the latter 
place without a corresponding enhancement of price in New 
York within one fortnight, the time which it takes for a steam- 
er to cross the Atlantic and convey the intelligence ; and before 
another week has elapsed, ship-loads of corn are stemming their 
way eastward, to supply the triffing deficiency indicated even 
by this sUght change in the market. It is no more a hardship 
or a disadvantage for England, than for our own State of 
Massachusetts, to be obliged to buy a portion of the articles 
of subsistence for her population ; and the deficiency in our 
own case, it may be remarked, is relatively greater than in the 
mother country ; for we never raise food enough for our own 
consumption, while the English crops, in ordinary years, suffice 
for nearly the whole English demand. In both cases, it may 
be said, the deficiency proceeds, not from natural causes, but 
from the choice of man. It is found more profitable to de- 
vote the larger portion of the labor of the two countries to 
commerce and manufactures, and to buy a portion of the food 
that is required, than to cultivate the soil to the full extent of 
which it is capable, and thereby raise the whole stock of pro- 
visions. If a given amount of labor employed in spinning yarn 
and weaving cloth will produce enough to buy two bushels of 
gi*ain, while, if devoted immediately to tilling the ground, it 
will raise only one bushel, it is certain that the labor will be 



THE THEORY OF RENT. 177 

given to manufactures, and not to agriculture ; and the defi- 
ciency of food thus created, (if it can be called a deficiency,) 
will afford no reason for impeaching the bounty of Providence, 
and no cause for fear lest the increase of the population should 
outstrip the increase of the supply of food. 

We say, then, that this theory of rent, being inapplicable 
and unsound in the case of America, is consequently untrue in 
its application to Europe generally, and even to England. An 
increase of the English population does create a larger demand 
for food. But this demand does not oblige the people to have 
recourse to the poorer soils in order to enlarge the crops, nor 
even to apply more capital with less profit to the soil already 
under tillage ; it simply obliges them to import more food from 
America and the countries on the Baltic and the Black Sea. 
And the supply which these countries may afford is indefinite ; 
the only reason why they do not now send more corn to Eng- 
land, is that England needs no more. There is every reason 
to believe, that if Great Britain should altogether cease to be 
a grain-producing country, if it should devote all its fields to 
pasturage, these other countries would still keep the English 
market bountifully stocked with gi-ain, and with no material 
enhancement of its price. The possible supply of wheat and 
maize from the back country of the United States defies all 
calculation ; it is kept dammed up there now, because the pro- 
ducers know, if it were thrown upon the market at once, that 
it would sink the price below the cost of production. But be- 
cause it exists in excess, if the capacity of the market were in- 
creased, the supply might be indefinitely enlarged without any 
material or even perceptible enhancement of price. There is 
no more risk that our back country will be drained of wheat, 
than that the great Mississippi will drain it of water. Lower 
the bar at its mouth, or sink the level of the broad ocean itself, 
and the rivers will yet continue to run, for their springs are pe- 
rennial. The bounty of God feeds them. Instead of saying, 
then, that population presses on the means of subsistence, the 
true proposition would be, that the supply of food presses hard 
upon the increase of population. The force of the pressure 
being thus turned the other way, the supply of food might be 
indefinitely increased, without any enhancement of price from 
the enlarged demand. 



178 



THE THEORY OF RENT, 



Thus much for the contradiction of the theory by the facts 
in the case. The refutation of it in principle, or by abstract 
reasoning, is equally easy. And first, it is to be observed, 
that the natural fertility, or what Ricardo calls the original 
and inherent powers of the soil, as an element of rent, are 
wholly insignificant in comparison with nearness to market. 
The most barren soils in the world, even hard rock, pure sand, 
or stagnant marsh, should a populous and wealthy city spring 
up in the neighborhood, will yield rent, often a large rent, be- 
cause they afford a field which human industry and skill can 
convert into a productive garden. On the other hand, soil of 
the greatest natural fertUity, if it be far distant from any mar- 
ket for agricultural produce, will command no price and yield 
no rent. For instances of the former class, take the larger por- 
tion of the soil of Belgium and HoUand, much of which has 
been literally reclaimed from the sea, against which it is now 
protected by stupendous dikes, and a still larger part was 
originally barren sand, on which it was first necessary to plant 
coarse grass, the roots of which might protect it from being 
perpetually shifted by the winds. Yet these broad districts of 
sea and sand are now the gardens of Europe, shaming even 
the wonders of English farming by the fulness of their crops. 
Two and a half acres of them yield food enough for a family 
of five persons. The accKvities of the Alps in Switzerland, 
dug out into terraces, and blooming with the oHve and the 
vine, — and many an acre of former marsh in Cambridge and 
Lincoln counties, England, now forming rich corn-fields, — are 
other instances of land made productive and yielding rent by 
vicinity to a market, in spite of the greatest natural disadvan- 
tages. 

For examples to corroborate the other branch of the state- 
ment, we have only to look at the remote West of our own 
fair land. Thousands of square miles of the most productive 
land in the world, in Kanzas and Minnesota, are even now 
lying tenantless, because they will not command the govern- 
ment price of only $ 1.25 an acre. And even in the more 
thicldy settled States of the great Mississippi Valley, many a 
broad region yet remains waste in the ownership of the gov- 
ernment, far superior in natural advantages to the soil of Bel- 
gium in its original condition, and for which, notwithstanding. 



THE THEORY OF RENT, 179 

no one will give this almost nominal price. The reason is, 
that there is not market enough in the neighborhood to take 
off the surplus agricultural produce. If the population should 
increase in numbers, so as to require a larger amount of food, 
though at the same price at which it is now held, this waste 
land would soon be purchased and reduced to tillage. 

This point being established, then, that the original fertility 
of the soil is an element of little or no importance in the the- 
ory of rent, we have only to consider that portion of Ricardo's 
doctrine which relates to comparative distance from the mar- 
ket. He maintains, that land bears rent in proportion to its 
nearness to the place where agricultural produce is needed and 
consumed ; and that the increase of population, consequently, 
is an evil, because the community are obliged to send farther 
and farther off for their supplies. Here is the great and obvi- 
ous fallacy, of supposing that the population., as it increases^ re- 
mains stationary, or on the same spot, so that the grain must be 
brought to it at a price enhanced by the cost of transportation. 
We answer, that, instead of the food coming' from a distance to 
the population, the population go to the food. The nation ex- 
pands over more space as it increases in numbers. The tide 
of emigration sets towards the waste lands in a current, the 
velocity and depth of which are proportioned to the increase in 
the volume of the waters. The new-comers, the addition to 
the nation, instead of raising the price of food for themselves 
and their predecessors, actually cheapen it. As they spread 
themselves over the waste lands, and reduce them to cultiva- 
tion, they not only raise food enough for themselves, but they 
increase the surplus which is sent to market, to be there ex- 
changed for manufactures and the produce of foreign climes. 

This is exemplified in the history of our own New England. 
The average rate of increase of the population here, during the 
last thu'ty years, has been about 17 per cent for every ten 
years, while for the whole United States it has been about 34 
per cent, or twice as large. Why is this, since the excess of 
births over deaths is probably as great in New England as in 
any other portion of the country? The answer is obvious. 
One half of those who are born here, and sm-vive to the age of 
maturity, (one half of the sm-plus, I mean, over those who are 
needed to compensate for the deaths, and thus to keep up the 



180 THE THEORY OF RENT. 

population to its original number,) emigrate to the West, and 
there take their part in the great work of settling the wild 
lands, and reducing them to tillage. And so successful have 
their labors been, that the price of grain and other agricultural 
produce has not risen in proportion to the increase of our num- 
bers, as it ought to have done, if Ricardo's theory were true ; 
the average price of food, all over the country, has fallen since 
1800, though since that time our population has been quad- 
rupled, and though our exports of provisions also have in- 
creased to an immense extent. 

We come, then, to a theory of rent which differs very widely 
from that of Ricardo's. Rent depends, not on the increase, but 
on the distribution, of the pojndation. It arises from the excess 
of the local demand over the local supply, and is therefore ulti- 
mately regulated by the expense and inconvenience of bringing 
the food from a distance, or by the discomforts and privations 
which attend the removal of a portion of the people to a new 
home. The migration is not necessarily directed to another 
country ; the more remote and less populous counties or states 
may receive the surplus population of the metropolitan region 
and the manufactm'ing districts, and an additional supply of 
food will then be obtained from the agricultural labor of those 
who have thus found a new home. An increase in the num- 
bers of the people may thus be followed by more than a pro- 
portional increase of the means of subsistence. The price of 
food, then, will not vary in proportion to the rent ; on the con- 
trary, the rent may increase indefinitely, while the price of food 
is diminishing. A livelihood may be more easily and cheaply 
obtained by commercial or manufacturing industry in a great 
city or a populous region, notwithstanding the considerable 
outlay required for rent, than by tilling the ground in a distiict 
where land may be hired for a trifling sum, or even purchased 
at a nominal price ; and still the extension of agriculture may 
be so great, as the forest is cleared up and the prairie planted, 
that corn and flour may be bought Dy the inhabitants of cities 
more cheaply than ever. This is not mere theory, but fact ; it 
is but a recital of the mingled experience of the manufactur- 
ing districts of New England and the border disti'icts of culti- 
vation in the Western States. 

Not only in America, but in Great Britain and Ireland, and 



THE THEORY OV RENT. 181 

indeed throughout the civilized world, it is notorious that rent 
is produced and increased, or, in other words, that value is 
given to the land, by creating a market for agricultural prod- 
uce in the neighborhood of the land whence that produce is 
obtained ; that is, by collecting a town or civic population, en- 
gaged in manufactures and commerce, who have the means to 
buy the wheat. By collecting- such a population, I say ; not 
by creating' one, or by making the total number of the whole 
people larger, as Ricardo's theory requires. It is not the want 
of a larger supply of food, but the altered locality of the de- 
mand, and the altered habits and occupations of the people, 
which swell the value of the land and enhance the rent. 

And, conversely, the population might be considerably en- 
larged, and more food consequently be required, at the very 
time when rents were falling throughout the country, if the 
process of dispersion should be going on at the same period, 
the people leaving the manufacturing towns and the centres of 
commerce, and spreading themselves over the face of the coun- 
try, so that each family would come nearer the particular spot 
of land that feeds it. This is the evil often experienced here 
in America, where many towns and smaller cities upon the 
Atlantic coast, which were prosperous and wealthy in the lat- 
ter part of the last century, and up to the close of the war in 
1815, have since ceased to advance, and even retrograded, in 
riches and population, many of the citizens joining the great 
tide of migration to the Western States, because the policy of 
the national government was no longer favorable to manufac- 
tures, the fisheries, and commerce. Very recently, the estab- 
lishment of railroads, and other local causes, have somewhat 
checked this tendency to dispersion; but the account here 
given is still applicable, in a greater or less degree, to such sea- 
ports in New England as Portsmouth, Newburyport, Salem, 
Nantucket, Newport, and New London, and to some formerly 
flourishing towns on Chesapeake Bay and the Southern At- 
lantic coast. Of course, as these towns dwindled, the value 
and the rent of farms in their immediate vicinity were also 
depressed, and agriculture, instead of advancing, visibly retro- 
graded, the prices of all kinds of rural produce being kept down 
by the abundant supplies which began to arrive from the newly 
cleared regions at the West. Yet all this while the total pop- 
16 



182 THE THEORY OF RENT. 

Illation of the United States was increasing wdth unparalleled 
rapidity, and, if Ricardo's theory were true, rent ought to have 
advanced pari passu. 

To illustrate the opposite result, the rise of rents and of the 
prices of agricultural produce produced by the concenti'ation 
of the people in manufacturing districts and towns, I might re- 
fer to such obvious instances as the neighborhood of Lowell in 
Massachusetts, Manchester in New Hampshire, Rochester in 
New York, Pittsburg in Pennsylvania, and many others, the 
rapid and immense increase of which in population and wealth 
seems almost fabulous. It is the rapidity of this increase, in- 
deed, which proves that the result is attributable to bringing 
the people together, and not to the nattnal growi:h of the total 
population. It cannot have been from the increased number 
of births, that Rochester, for instance, wliich had a population 
of only 1,500 in 1820, numbered over 9,000 inhabitants in 
1830, over 20,000 in 1840, and over 36,000 in 1850 ; or that 
Lowell, whose population in 1830 was about 6,500, numbered 
over 33,000 in 1850. For illustrations from Great Britain, in 
which comitry alone does Ricardo's theory of rent seem even 
plausible, I need only bring together a few passages from an 
able essay recently published by a French A^Titer, JVI. Leonce 
de Lavergne, on the " Riural Economy of England, Scotland, 
and Ireland," * contrasted with that of France. 

Up to the time of Arthur Young, he says, "the English 
farmers had, like all those of the Continent, worked with Uttle 
view to a market. INIost agricultural productions were con- 
sumed on the spot by the producers themselves ; and although 
in England more was sold for consumption beyond the farm 
than anywhere else, it was not export which regulated produc- 
tion. Arthur Young was the first who made the English agri- 
cultm-ists understand the increasing importance of a market ; 
that is to say, the sale of agricultural produce to a population 
not contributing to produce it. Tliis non-agiicultm-al popula- 
tion, which up to that time was inconsiderable, began to de- 
velop, and since then its increase has been immense, owing to 
the expansion of manufactures and commerce. Everybody 



* Translated from the French, -nath Notes, by a Scottish Farmer. Edinburgh 
and London : W. Black-wood and Sons. 1855. Chapters 11, 18, 20. 



THE THEORY OF RENT. 183 

knows Avhat enormous progress the employment of steam as a 
motive power has ejEFected in British manufactures and com- 
merce during the last fifty years. The principal seat of this 
amazing activity is in the northwest of England, the county of 
Lancaster, and its neighbor, the West Riding of Yorkshire. 
There Manchester works cotton, Leeds wool, Sheffield iron, 
and the port of Liverpool, with its constant current of exports 
and imports, feeds an indefatigable production." 

" One third of the English nation is concentrated on these 
two points, — London in the south, and the manufacturing 
towns of Lancashire and the West Riding in the north. These 
human ant-hiUs are as rich as they are numerous. What be- 
comes of the immense amount of wages paid to this mass of 
workmen every year ? It goes, in the first place, to pay for 
meat, beer, milk, butter, cheese, which are dnectly supplied by 
agriculture, and woollen and linen clothing, which it indirectly 
furnishes. There exists, consequently, a constant demand for 
productions which agriculture can hardly satisfy, and which is 
for her, in some measure, an unlimited som*ce of profit. The 
power of these outlets is felt over the whole country; if the 
farmer has not a manufacturing town beside him to take off 
his produce, he has a port ; and should he be distant from both, 
he brings himself into connection with them by canal, or by 
one or more lines of railway." 

" If Lancashire is the most productive distidct in the world, 
it is also the dullest. Let any one fancy an immense morass, 
shut in between the sea on one side and mountains on the 
other ; stiff clay land, with an impervious subsoil everywhere 
hostile to farming ; add to this a most gloomy climate, contin- 
ual rain, a constant cold sea-wind, besides a thick smoke shut- 
ting out what little fight penetrates the foggy atmosphere ; and 
lastly, the ground, the inhabitants, and their dwelfings com- 
pletely covered with a coating of black dust, — fancy all this, 
and some idea may be formed of this strange county, where 
the air and the earth seem only one mixture of coal and water ! 
Such, however, is the influence upon production of an inex- 
haustible outlet, that these fields, so gloomy and forsaken, are 
rented at an average of 305. ($ 7), and in the immediate en- 
virons of Liverpool and Manchester, arable land lets as high 
as X 4 (1 20), an acre. There are not many soils inthe most 

"D 




184 THE THEORY OF RENT. 

sun-favored lands which can boast such rents. At the sight of 
such wonders, one is almost tempted with the Latin poet to 
exclaim, 

' Salve, magna parens frugum, Satumia tellus, 
Magna virAm ! ' " 

" If England's history as a manufacturing country is brilliant, 
what shall we say of Scotland ? We may judge by a single 
example. The counties of Lanark and Renfrew, where man- 
ufactures and commerce are most active, have increased in 
population, in the space of a hundred years, from 100,000 to 
600,000, and Glasgow alone from 20,000 to 400,000. Clydes- 
dale, once deserted, now rivals Lancashire for its collieries, 
manufactories, and immense shipping trade. In 1750, the 
germ even of this wealth did not exist ; it was English capital, 
combined with the plodding and frugal genius of the Scotch 
people, which in so short a time made that unproductive dis- 
trict what it now is. Strong proof this of the advantages 
which may accrue to a non-manufacturing country by being 
associated with one rich and already industrial ! Scotland, as 
long as she remained separate from England, and dependent 
on her own resoiu'ces, only vegetated ; but as soon as the cap- 
ital and experience of her powerful neighbor broke in upon her, 
she took a start quite equal to England. This sudden growth 
of manufactures has been increased, as always happens, by a 
corresponding advance in agriculture. In proportion as com- 
merce and manufactures multiply men and augment wages, 
agriculture renews its efforts to supply food for the constantly 
increasing mass of consumers ; and in a limited country, like 
the Lowlands, a population such as that of Glasgow and its 
dependencies causes the demand for agricultural produce to be 
felt over its whole extent." 

In England, "the manufacturing districts par excellence, 
commencing with Warwickshire in the south, and ending with 
the West Riding of Yorkshire, are those in which rents, prof- 
its, and agricultural wages rise highest. There the average 
rent is 30^. per acre, and a country laborer's wages 12s. a 
week ; whilst in the district exclusively agricultural, lying south 
of London, the average rent is not more than 20^. per acre, 
and wages 85. a week. The intermediate counties approach 
more or less to these two extremes, according as they are more 



THE THEORY OF RENT. 185 

or less manufacturing, and everywhere the rate of land and 
wages is a sui'e criterion of the development of local industry. 

" It is pretty generally believed, that pauperism prevails 
more in the manufacturing than in other districts. This is 
quite a mistake." It appears from the official returns, that in 
the manufacturing counties, " the poor's rate is about Is. in the 
pound, or 3^. to 4^. a head, and the number of poor 3 to 4 per 
cent of the population ; whilst in the agricultm-al counties, it 
exceeds 2s. in the pound, or IO5. a head, and the number of 
paupers is from 13 to 16 per cent of the population. The 
cause of this difference is easily understood; the number of 
paupers and the cost of their maintenance increases as the rate 
of wages becomes lower. Although the worldng population 
be three or four times more dense in the manufactming than 
in other parts of the country, its condition there is better, be- 
cause it produces more." 

" If we transport ourselves to France, to the most backward 
departments of the centre and south, what do we there find ? 
A thinly scattered population, at the most, not exceeding on an 
average one thu*d that of the English, — one head only, in place 
of three, to five acres, — and that population almost entirely 
agricultural ; few or no large towns, fittle or no manufactures, 
trade confined to the limited wants of the inhabitants ; the 
centres of consumption distant, means of communication cost- 
ly and difficult, and expenses of transport equal to the entire 
value of the produce. The cultivator has little or nothing to 
dispose of. Why does he work ? To feed himself and his 
master with the produce of his labor. The master divides the 
produce with him and consumes his portion ; if it is wheat and 
wine, master and metayer eat wheat and drink wine ; if it is 
rye, buckwheat, potatoes, these they consume together. Wool 
and flax are shared in like manner, and serve to make the 
coarse stuffs with which both clothe themselves. Should there 
happen to remain over a few lean sheep, some ill-fed pigs, or 
some calves, reared with difficulty by over-worked cows, whose 
milk is disputed with their offspring, these are sold to pay 
taxes. 

" In this state of things, as there is no interchange, the culti- 
vator is obliged to produce those articles which are most ne- 
cessary for life, — that is to say, the cereal grains : if the soil 
16* 



186 



THE THEORY OF RENT. 



yields little, so much the worse for him ; he has no choice, he 
must produce corn or die of hunger. Now, on bad land, there 
is no more expensive cultivation than this ; even on good, if 
care is not talvcn, it soon becomes burdensome ; but under 
these conditions of farming, no one thinks of taking account 
of the expense. The labor is not for profit, but for life ; cost 
what it may, corn must be had, or at all events, rye. As long 
as the population is scanty, the evil is not overwhelming, be- 
cause there is no want of land : long fallows enable the land 
to produce something ; but as soon as the population begins 
to increase, the soil ceases to be sufficient for the purpose ; 
and a time soon amves, when the population suffers severely 
for want of food." 

That rent depends upon the distribution, and not upon the 
increase, of the population, may be easily seen by putting the 
extreme case. Suppose the inhabitants of a country distrib- 
uted "with perfect evenness over its territory, each family resid- 
ing upon the centre of the spot, say ten or twelve acres in 
extent, which feeds it. While the population is small, a dis- 
trict of limited extent may supply homesteads for all the inhab- 
itants. As the people increase in number, suppose additional 
lots, upon the outskirts of the former settlements, to be laid 
out for the new families. It is not necessary that the soil 
should be of equal fertility throughout the land, so that al] the 
farms should consist of the same number of acres. In the more 
productive districts, six or eight acres may suffice for a family ; 
in the less favored ones, sixteen or twenty may be needed. 
The only essential point is, that each family should have 
enough land, and no more than enough, for its own Wants. 

Under these circumstances, it is evident, the land would not 
yield any rent ; there would be enough for all. Monopoly, or 
exclusive appropriation, being impossible, a price would no 
more be set upon the land, than upon the air or the light. No 
one would think of charging rent, any more than of levying 
toUs for the right to cross the broad ocean. And it is conceiv- 
able, that this state of things should exist over the whole earth, 
and should continue for many centuries to come. Islands of 
limited extent, like the British Isles, might indeed be filled up, 
or completely occupied, the people having become so numer- 
ous that no more land could be had for the new families. In 



THE THEORY OF RENT. 187 

such case, the new families would have to emigrate, as they 
are now actually obliged to do ; but they would find abun- 
dance of unoccupied land in America, Australia, and elsewhere. 
It has aheady been demonstrated, that the earth does not con- 
tain a hundredth part of the population it is capable of feed- 
ing. " Malte-Brun has said, that the soil of Europe alone 
could afford ample food for a thousand millions of inhabitants ; 
being nearly five times its present number, and more by one 
fifth than the whole actual population of the globe." Consid- 
ering that the facilities for emigration are rapidly multiplying, 
and that already over 400,000 human beings annually cross 
the Atlantic to seek a new home, it is obvious that there is no 
practical difficulty in dividing the increase of population among 
the most distant regions of the earth, or wherever food can be 
most easily obtained. 

But if the population of one country, or of the whole globe, 
were thus distributed with perfect evenness, each family resid- 
ing upon the spot that furnished it with food, though there 
would be no rent, it is obvious that there would be little or no 
division of labor, and, consequently, no progress in civilization 
and the arts, and no advancement in opulence. Mankind 
would begin to retrograde to a condition as low as that in 
which any portion of them have yet been found. The labor 
of far the larger portion of each family would have to be de- 
voted to agriculture, in order to obtain the necessary suste- 
nance from the ground ; and as the labor of the remaining part, 
would not suffice to renew and keep in repair the stock of 
tools, domestic utensils, and household comforts, these would 
soon be expended or worn out. As tools become imperfect 
and deficient, more labor must be given to tillage. The pro- 
cesses of agriculture would thus rapidly degenerate, tiU at last 
the incessant toil of the whole family would produce only a 
scanty supply of the coarsest sustenance, and from the want of 
leisure, knowledge and civilization would die out. 

But experience even of the commencement of these evils 
would teach mankind their appropriate and easy remedy. 
Several families would unite, in order to obtain the benefits of 
a division of labor. Some would devote themselves exclu- 
sively to the manufacture of agricultural implements and 
household articles, while the labor of the others would supply 



188 THE THEORY OF RENT. 

them with food. As manufacturing operatives must work 
near each other, the ground originally allotted to a single fam- 
ily would come to be tenanted by many, and would form the 
nucleus of a town. But a town is necessarily a market for the 
sale of agricultural produce and the purchase of manufactured 
commodities. From the advantages which the town would 
thus afford, the land in its immediate vicinity, being limited in 
quantity, w^ould assume a value, or, in other words, would be- 
gin to yield a rent. Upon any hypothesis that can be framed, 
even upon Ricardo's doctrine, the origin of rent must be traced 
to monopoly, — to a necessarily limited supply met by an un- 
limited demand. Only a small number of farms of the origi- 
nal size, from six to twenty acres, can have the advantage of 
immediate proximity to the newly formed manufacturing vil- 
lage ; the occupants of these farms would be better furnished 
with tools, and more able to exchange their products for man- 
ufactured goods. The occupants of farms at a distance would 
be willing to pm-chase these advantages of them, — to offer two 
or three acres remote from market, in exchange for one acre ad- 
joining a town. Thus rent would begin, not at all as a conse- 
quence of the absolute increase of the population, for the total 
population might be stationary or even retrograding while 
these changes were going on, but as a consequence of the al- 
tered distribution of the people over the face of the country. 

Malthus and Ricardo, with their followers, perceived that the 
origin of rent must be attributed to monopoly ; for the value of 
land, so far as it consists in the natural and inherent qualities 
of the soil, is an instance of the existence of value without la- 
bor, and therefore, according to the first principles of Political 
Economy, it can be explained only by a limited supply and 
exclusive appropriation. But they failed to perceive the 
causes and nature of the monopoly, or to trace the conse- 
quences of the application of their own doctrine. They im- 
agined that the high rent of land in a given county or district 
is only a particular case of the over-populousness of the whole 
country or kingdom, — of the fact that the whole extent of ter- 
ritory is insufficient to meet the wants of the whole population. 
They supposed, therefore, that the rise of rent properli/ so 
called must be uniform throughout the whole country, and 
must also be exactly proportioned, after deducting the effects 



THE THEORY OF RENT. 189 

of agricultural improvements, to the increase of the total pop- 
ulation, — two suppositions which are contrary to the facts. 
The notorious fact, that not even England is yet over-peopled, 
but is capable of supporting, from her own soil, a population 
thrice as dense as her present one, as is proved by the example 
of the most densely inhabited portions of Belgium, or a hundred 
times as dense, if we consider the supplies of food which she 
might obtain from abroad, — this fact, I say, they endeavored 
to explain away by the unfounded assumptions that the most 
fertile land is always the first occupied, and that the people are 
compelled, by every increase of their numbers, to have recourse 
to inferior soils, or to apply additional capital to the ground 
with constantly diminishing returns. Not the more fertile 
lands, however, but those which are nearer to cities and to 
populous manufacturing districts, yield the higher rent; and 
the highest rents of all are obtained from land that is not used 
at all for pm-poses of agriculture, but only for habitation or 
manufacturing purposes, within the limits of the cities them- 
selves, — a phenomenon of which the theory of Ricardo furnish- 
es no explanation whatever. His theory is applicable only to 
what may be called agricultural rents ; civic rents, the ground- 
rents of houses and shops in crowded cities, afford the best of 
all instances of rent properly so called, as they are free from the 
effects of the great distm-bing cause, — agricultural improve- 
ments. These ground-rents do not depend upon the magni- 
tude of the population of the city, or upon its rate of increase ; 
they rise and fall in different streets, under the varying demand 
produced by the changes of business and the mutations of 
fashion. In London, they have risen enormously high in Bel- 
gravia, and fallen proportionally in what was the fashionable 
part of the metropolis a century ago ; in the most crowded por- 
tions of the city proper, they are probably no higher than they 
were in the time of George III., and do not certainly equal 
some in Washington Street, Boston, the population of which 
city is not one twelfth part as great as that of London. In 
the English metropolis, the population, as it increases in 
number, necessarily spreads itself over more space ; and there- 
fore it may be doubted whether the aggregate ground-rent 
of those portions of the city which were densely inhabited 
at the beginning of this century is any greater now than it 



190 



THE THEORY OF RENT. 



was in 1800, though the population of all England meanwhile 
has doubled. 

In the United States, the want of local attachments and the 
restless and migi-atory character of the population have drawn 
attention to the fact, that rents begin, or the land acquires 
value, as fast as the vicinity is peopled. The favorite form of 
speculation here, the easiest and most common mode of money- 
getting, is the acquisition of a tract of land in some neighbor- 
hood where the circumstances indicate that a new town or 
city must soon spring up. A fortune is thus easily acquired, 
as the land acquires value before any labor is expended upon 
it, and long before the necessities of an increasing population 
would requu-e it to be inhabited, or even cultivated. In Eng- 
land, the more stationary habits of the population have con- 
cealed this fact, and as the land slowly rose in value with the 
advancement of opulence and the gradual increase in the num- 
ber of the whole people, Anderson's or Ricardo's theory of rent 
seemed plausible enough. Their doctrine seemed to illustrate 
the phenomenon, otherwise apparently inexplicable, of the 
steady growth of the fortunes of the aristocracy and the landed 
gentry, who neither labor nor spin, proportionally with the in- 
crease of the wealth of the commercial and manufactiiring 
classes, whose prosperity is attributable to their own industry 
and enterprise. Yet even in England, there has been a regular 
movement of the population, a steady drain from the agricul- 
tural counties, and a filling up of the manufacturing districts. 
The increase of the population during the last fifty years, in 
the agricultural counties of Hereford, the North Riding of 
York, and Wilts, has been respectively but 31, 35, and 38 per 
cent; while in Stafford, for the same period, it has been 151, 
in Durham, 160, and in Lancaster, 201 per cent. And the 
consequence has been the unprecedented rise of rents, already 
mentioned, in the counties last named, while in Wilts, Here- 
ford, and the North Riding, it may be doubted whether the 
average annual value of the land, excluding the improvements 
effected by capital, is any greater than it was half a century 
ago. 

The rise of rents, as thus explained, is no hardship for those 
who are not landholders, and does not tend to depress the la- 
boring part of the population. Those who pay these higher 



THE THEORY OF RENT. 191 

rents, or the higher prices of corn which produce them, are 
compensated by the advantages they obtain through their vi- 
cinity to a market. In fact, the enhancement of price for the 
bm-ghers or citizens is merely nominal ; they obtain more, and 
have a readier sale, for the manufactured goods which they 
produce, and pay more for the corn which they consume, the 
one result counterbalancing the other. What matters it to the 
laborer, if he pays more rent for his dwelling, and a higher 
price for his corn and potatoes, provided that the additional 
wages which he receives are more than enough to meet these 
additional expenses ? The positive gain to the community 
consists in the saving of transportation both ways. K the 
population were not concentrated, it would be necessary to 
transport the agricultural produce a long distance to the town 
where it is consumed, and to carry the manufactured goods an 
equal distance to the farmers who need them. Even the Eng- 
lish economists admit, that a great saving is effected in this 
respect through canals, railways, and other contrivances which 
lessen the cost of transportation. Is it not still a greater sav- 
ing to do away with the necessity of these improved means of 
transport, and with the cost of constructing them, by bringing 
the agriculturists and the manufacturers nearer to each other ? 
While reasoning in favor of the abolition of the corn-laws, 
McCuUoch himself presents this point with much clearness. 
He argues that the repeal of these laws will not leave the Eng- 
Ush farmer destitute of protection, for he will still have an 
advantage over the foreign grower, consisting in the cost of 
importing the grain from the Baltic, the Black Sea, or America. 
The' charges of transportation and the profits of the importer 
must still be added to the price of the grain at the place where 
it is raised, and as the risk is great in dealing in corn, this 
enhancement of price must be considerable. To take the near- 
est source of supply, for instance, he computes the cost of 
transporting grain from the upper provinces on the Bug to 
Dantzic to be from Is. to 9^. a quarter ; and thence to Lon- 
don, including insurance and profit, 5s. or Qs. more. If the 
Polish grower, therefore, receives 43s. a quarter for his wheat, 
"it could not, in ordinary years, be offered for sale in this 
country for less than from 55s. to 58s. a quarter, a price more 
than sufficient to insure the continued progress of British agri- 



192 THE THEORY OF RENT. 

culture." * If there were manufacturing cities in the southern 
part of Poland, the fanner there might obtain 33 per cent more 
for his wheat, an advantage which would more than compen- 
sate him for paying a protective duty of equal amount on 
manufactured goods. 

It is as much for the interest, then, of the farmers of the 
Mississippi valley, as of the manufacturers themselves, that the 
American system of protection should be restored. At pres- 
ent, the value of the lands at the West is kept down by the 
distance of their produce from a market. The cost of trans- 
porting a barrel of ilour from Cincinnati to New York 
amounts, at ordinary prices, to at least thirty per cent of its 
value at the former place ; the cost of its further transportation 
to Liverpool, including insurance and other necessary expen- 
ses, raises this proportion to about forty per cent. Create a 
manufacturing ])opulation in Ohio like that w^hich exists in 
English Lancashire, and the price of flour at Cincinnati would 
be made equal to its price at Liverpool. Free trade between 
England and Ohio, then, means simply that Ohio produce 
should be admitted into the English ports under what we may 
call a " transportation duty " of forty per cent ; while, owing 
to The great value, in a small bulk, of the finer manufactures, 
English produce is to be admitted into Cincinnati at a duty of 
only fifteen per cent. In other words, the opponents of protec- 
tion woiild persuade the Ohio farmer that it is better for him 
to buy English broadcloth at $1.70 a yard, and sell his flour 
at f 5.00, than to buy American broadcloth of the same qual- 
ity at $ 2.00, and sell his flour at $ 7.00. The depression in 
the value of Ohio produce, which took place between 1847 
and 1852, is clearly attributable to the fact, that the crowds 
of laborers discharged from our unprosperous manufacturing 
establishments, and the 400,000 immigrants annually landed 
on our shores, have been driven into agriculture, and have so 
increased the annual product of Michigan, Iowa, and Wiscon- 
sin, as to undersell the Ohio farmer at his own door. The pro- 
tection of our manufactures would enlarge the home market 
for him, through the very means which are now swelling the 
number of his competitors. 

* McCuUoch's Geographical Dictionary, Art. Dantzic. 



WAGES. 193 



CHAPTER XIV. 

THE CAUSES WHICH AFFECT THE RATE OF WAGES. 

The doctrine of the English economists respecting wages 
may be easily inferred from their two theories, which have just 
been considered, respecting population and rent. Putting 
aside the consideration of wages reckoned in money, as these 
are subject to merely nominal variations, according as the 
value of money rises or falls, they say that wages rated in 
commodities, or the quantity of produce apportioned to each 
laborer, is determined by the ratio which the capital of the coun- 
try bears to its laboring population, or to the number of those 
who work for hire. By capital, however, they here mean " only 
circulating capital, and not even the whole of that, but the part 
which is expended in the direct purchase of labor. To this, 
however, must be added all funds which, without forming a 
part of capital, are paid in exchange for labor, such as the 
wages of soldiers, domestic servants, and all other unproduc- 
tive laborers." * The aggregate of capital or wealth devoted 
to this purpose, to the payment of productive or unproductive 
labor, may be termed the wages-fund of a country ; and the 
share of it which each laborer receives wOl evidently be deter- 
mined by its amount, compared with the whole number of 
persons seeking employment. 

Thus explained, the doctrine is a mere truism. We obtain 
no insight into the causes which regulate the rate of wages, 
when we are merely told that this rate depends upon the whole 
sum annually expended for wages, divided by the whole num- 
ber of persons who share this sum among them. But as it is 
intended to be understood, this proposition is merely a covert 
statement of the theory of Malthus. Assuming it to be impos- 
sible, by any measure of legislation or government policy, to 
increase the aggregate funds employed in hiring laborers, it is 
aiRrmed that a " diminution in the number of competitors for 



J. S. Mill's Political Ecmumy, Vol. I. p. 401. 
17 



194 WAGES. 

hire " is the sole means of raising wages, and that the power 
and responsibilit\' are thus placed in the hands of the laborers 
themselves. If they will refrain from overstocking the labor 
market, their condition as a class may be bettered ; but " every 
scheme for their benefit, which does not proceed on this as its 
foundation, is, for all permanent purposes, a delusion." " It is 
impossible," continues Mr. Mill, '• that population should in- 
crease at its utmost rate without lowering wages. Nor will 
the fall be stopped at any point short of that which, either by 
its physical or its moral operation, checks the increase of pop- 
ulation." 

Here is the great mistake of confounding the undue relative 
number of a class, with a general excess of the whole popula- 
tion. The former evil might be corrected by portioning out 
society anew, through the gradual influence of altered laws, so 
that the divisions or castes which are too thin in number, might 
be recruited from those which are in excess, and the proper 
balance be thus restored without the necessity of adopting any 
measures which would aftect the bulk of the people. The lat- 
ter evil, if it ever really existed, could be removed only by war, 
pestilence, famine, or a general adoption of the doctrine of 
Malthits. If it were as easy in England as it is in this coun- 
try for a common laborer to become a master-mechanic, or a 
small tradesman, or to buy a farm ; or if, as in most countries 
on the Continent, the bulk of the laboring community pos- 
sessed either peasant properties, or a kind of prescriptive right 
to farm the land of another "on shares," as niefat/ers, there 
would be no need of preaching abstinence fi*om marriage to 
them ; they would not compete with each other in the labor 
market, if the rate of wages were not high enough to tempt 
them to forsake their independent occupations. The number 
of persons in Great Britain who are entirely dependent on the 
wages of hired labor is unquestionably much too great ; the 
proportion of this class to the whole people is probably five 
times as large as in any country in Continental Eiuope. Di- 
minish their number, then, by all means. But how ? The 
Malthusian economists assume that the only mode of eftecting 
this end is to check the natural growth of the whole popula- 
tion, to lessen the yearly average of marriages and births. But 
would it not be equally effectual, and more practicable, to re- 



WAGES. 195 

cruit from them the classes which are strikingly deficient in 
numbers, and thus restore the proper balance of society ? It 
is certainly an anomaly and an evil, that more than half of the 
people of Great Britain should be hired laborers, who have 
neither capital nor land ; but it is equally anomalous and inju- 
rious to the welfare of the whole nation, that only about 
60,000 persons should own nearly all the land,* and less than 
300,000 possess four fifths of the whole property, both real and 
personal. If the greater part of the hired laborers in England 
could be converted into peasant proprietors, we should hear no 

* Samuel Laing, Esq., the distinguished traveller, tells us that "the class of land- 
ed proprietors in Scotland does not, it is said, exceed five or six thousand individ- 
uals " ; and in Ireland, before the recent proceedings of the Commission for the Sale 
of Encumbered Estates, Tlie Times newspaper, with the best means of information, 
estimated the number of landiiolders at only eight thousand. If fourteen thousand 
persons own all Scotland and Ireland, it may seem extravagant to admit that there 
are as many as 46,000 proprietors in England and Wales. But this number in- 
cludes many who own only small lots of land, sufficient for a residence and a gar- 
den ; and also a few " statesmen," as they are called, in Cumberland county, who 
cultivate their own little farms, and are the small remains, every day diminishing 
in number, of the ancient " yeomanry " of England. Undoubtedly, far the greater 
part of the land devoted to tillage is owned by a much smaller number of persons 
than is here allowed. M. L6once de Lavergne, who will not allow that property in 
England is so much concentrated as is commonly imagined, admits that " a certain 
number " of proprietors, " at most 2,000, possess among them one third of the land 
and total revenue ; and of these 2,000, there are 50 having princely fortunes. Some 
of the English dukes possess entire counties, and have a revenue of millions of 
francs." These 2,000 families, he estimates, possess 25,000,000 acres of land, and 
£20,000,000 of income. The whole number of acres in the three kingdoms is 
78,000,000 ; so that 2,000 persons own nearly one third of the land in the British 
Isles. 

According to the census of 1851, those who returned themselves as " landed pro- 
prietors," for all Great Britain, were less than 20,000 males and 15,000 females. 
Of course, some were owners of land who did not return themselves in the census 
as such, but under the head of some occupation, as barristers, physicians, officers in 
the army or navy, &c. On the other hand, the rank and social importance at- 
tached to the ownership of real estate probably induced many to class themselves 
among the "landed proprietors," though they did not own more than a house and 
garden. The whole number of separate farm-holdings in Great Britain, according 
to the census of 1851, is 285,936. If we allow an average of six farms to an estate, 
which is little enough, as many noble proprietors count their tenants by fifties, we 
have less than 48,000 land-owners for all England and Scotland. 

The estimate that less than 300,000 persons own four fifths of all the property, 
both real and personal, is rather vague ; but as Mr. Farr, the eminent actuary, in 
his evidence before a committee of the House of Commons, computes from the re- 
turns under the Income Tax that there are but 236,000 persons in Great Britain 
who possess an income of £ 200 or upwards, the estimate probably errs only on the 
.•iafe side. 



196 WAGES. 

more complaints about the lowness of wages, or the over-pop- 
ulousness of the country. The true mode of raising the rate 
of wages is to alter the relative numbers of employers and em- 
ployed, not to diminish the total population. 

According to the English theory, however, there are certain 
limits to the extent to which wages may be reduced. " The 
cost of producing labor," says McCulloch, "like that of every- 
thing else, must be paid by the purchasers. The race of labor- 
ers would become extinct, were they not supplied with the food 
and other articles sufficient, at least, for their support and that 
of their famihes. This is the lowest Umit to which the rate of 
wages can be permanently reduced ; and for this reason, it has 
been called the natural or necessary rate of wages. The mar- 
ket, or actual, rate of wages may sink to the level of this rate, 
but it is impossible it should continue below it. It is not on 
the quantity of money received by the laborer, but on the 
quantity of food and other articles which that money will buy, 
that his ability to maintain himself, and rear children, must de- 
pend. Hence the natiu-al or necessary rate of wages is deter- 
mined by the cost of the food, clothes, fuel, &c. required for 
the use and accommodation of laborers. And though a rise 
in the market or current rate of wages be seldom exactly coin- 
cident with a rise in the price of necessaries, they can never, 
except when the market rate of wages greatly exceeds the nat- 
ural or necessary rate, be far separated. However high its 
price, the laborers must always receive a supply of produce 
adequate for their support ; if they did not obtain thus much, 
they would be destitute; and disease and death would con- 
tinue to thin the population, until the reduced numbers bore 
such a proportion to the national capital as enabled them to 
obtain the means of subsistence." 

The standard of natural wages, however, does not always 
mean the smallest amount of food and other necessaries that 
is absolutely requisite to preserve the Uves of a laborer's fam- 
ily. As we have seen, what are accounted necessaries in one 
country, may be esteemed in another the decencies, and, in a 
third, the luxuries, of life. In England, the custom of the coun- 
try requires that the laborer should have beer ; his family, tea ; 
and all must have daily provision of bread, and occasionally 
taste meat. Only in Ireland, before the recent exodus, was the 



WAGES, 197 

standard of natural wages generally reduced to the cost of the 
absolute necessaries of existence, to a few potatoes and a little 
buttermilk, the scantiest provision of the coarsest and cheapest 
food that would support life. In such case, of course, no re- 
trenchment is possible ; and whenever a partial failure of the 
crops, as in 1847, or any other adverse circumstance, produces 
the slightest enhancement of the price of these necessaries, the 
laborer must starve, if public munificence does not come to his 
relief But in England, if wages are temporarily reduced, or 
if food for a short time be of higher cost, the working classes 
can dispense with meat, beer, and tea, and still subsist. But 
the standard of living being established by long custom, the 
laborers will not submit, or need not submit, to such a reduc- 
tion of their comforts as a permanent arrangement, but will 
rather throw themselves, of their families, upon the poor laws 
for support. 

Hence the importance which is attributed by the Malthusian 
Economists to the preservation of as high a standard of living 
as possible for the laboring classes. Those who work for hire, 
they argue, are themselves to blame, if, in their eagerness to 
burden themselves with families, they submit to lower wages 
and a poorer style of living than that established by their fore- 
fathers ; they must blame themselves if they do not even take 
advantage of a temporary increase in the demand for labor, or 
a temporary reduction in the price of food, to improve then* 
condition permanently, by refusing to go back to the low 
wages and diminished comforts of their former Ufe. " Unfor- 
tunately," says Mr. J. S. Mill, " this salutary effect is by no 
means to be counted upon ; it is a much more difficult thing 
to raise, than to lower, the scale of living which the laborers 
will consider as naore indispensable than marrying and having 
a family. If they content themselves with enjoying the greater 
comfort while it lasts, but do not learn to require it, they will 
people down to their old scale of living. If, from poverty, 
their children had previously been insufficiently fed or im- 
properly nursed, a greater number will now be reared, and the 
competition of these, when they grow up, will depress wages, 
probably in full proportion to the greater cheapness of food. 
If the effect is not produced in this mode, it will be produced 
by earlier and more numerous marriages, or by an increased 
17* 



198 WAGES. 

number of births to a marriage. According to all experience, 
a great increase invariably takes place in the number of mar- 
riages, in seasons of cheap food and full employment." 

It is in this way that the Malthusians justify the uniform 
despondency of their views, and refuse to believe that the abo- 
lition of the corn-laws, emigration, a widely spread epidemic, 
a destructive war, or any other cause of cheapened food or 
lessening for a time the number of competitors for hire, can 
effect any permanent improvement in the condition of the 
working classes. Instead of profiting by the occasion to raise 
their standard of living, the laborers only use it as a means of 
rearing more children, whose competition must eventually 
bring back wages to their former proportion to the price of 
food. The fact is overlooked, that it is the present hopeless- 
ness of their condition, the impossibihty of rising above their 
present rank in life, or even, as they are akeady at the bottom 
of the scale, of falling below it, which renders the laboring 
poor reckless and improvident in respect to marriages, and 
which makes them consider children as no encumbrance, and 
relief in the poor-house as no degradation. Under a different 
constitution of society, which should give the bulk of the peo- 
ple a right of ownership in the soil, such as the corresponding 
classes generally possess upon the Continent, and should break 
down the now impassable barriers between the different classes 
in the community, leaving the avenues to wealth and honor as 
open as they are in the United States, they would become 
more provident and hopeful, or a large family would no longer 
be esteemed a burden. 

Certainly, no one, under present circumstances, would ad- 
vise either an English or an Irish laborer, who is entirely de- 
pendent on wages, to diminish his chance of keeping out of 
the workhouse by taking upon himself the support of a wife 
and children. What would be imprudence for an individual, 
would be imprudence also in the whole class or body of men 
to which he belongs, or whose position in life resembles his 
own. The English Economists do right, then, at the present 
time, in dissuading the laboring poor from marriage. But we 
do not hereby acknowledge that the actual wretchedness of 
this class is the consequence of their having already multiplied 
up to the farthest limit at which the earth will supply them 



i 



WAGES. 



199 



with food. Much less do we accept the doctrine which tends 
to make the wealthier classes in Great Britain hard-hearted 
and indifferent at the sight of the sufferings of the poor, by 
teaching that their misery is their own fault, the inevitable re- 
sult of their own perversity and improvidence in keeping up 
their numbers too high. On the contrary, the very fact, that it 
is now imprudent for them to marry, is what they have most 
right to complain of, since it is not their own fault, but that of 
the laws and the aristocratic institutions of their country. If 
the poUcy of the Enghsh law, for the last half-century, had fa- 
vored the distribution of fortunes as directly as it has actually 
encouraged their aggregation, or if it had been only neutral in 
this respect, as it is in this country, and had allowed property 
to take its natural course of an equal division among all the 
children when the parent had expressed no wish to the con- 
trary, the laboring classes of England, Hke the peasantry of 
France and Switzerland, and the inhabitants of our own land, 
might now be free to follow their own inclinations without in- 
curring the charge of imprudence. Their right to do so would 
be established by a fact of the first importance in the eyes 
of a Malthusian ; they would not have become as numerous 
as they now are. The population of France, under the law 
which compels an equal division of the parent's estate among 
his children, increases at the rate of only five per cent in ten 
years, while the rate for England is about thrice as great. 
Yet no one supposes that the EngUshman is naturally more 
careless and improvident, or more inclined to excess, than his 
neighbor across the Channel. 

In England, an increase of the population is, pro tanto, an 
addition to the number of laborers seeking employment, an in- 
crease of the supply in the labor-market, and therefore a cause 
of the depression of wages. In America it is not so. The 
facilities for coUecting a little capital are so numerous, and the 
expenses of living among a rural population, especially in the 
Western States, are so moderate, that the class of persons who 
are dependent exclusively upon wages, and who form the bulk 
of the community in many European countries, is here very 
small. The bulk of our people, at least of those who are na- 
tive-born, may be said to belong to the class of independent 
laborers or small capitalists. Either by inheritance, or the 



200 



WAGES. 



assistance of friends, or the facility of obtaining credit, or 
by savings made from wages earned during his minority, 
almost every native American may be said to have the option 
of " beginning life," as it is called, with a little capital. But 
because this capital is small in amount, the possessor of it is 
willing, if wages are high, to work for others for a time, either 
as a journeyman, a farm-laborer, a clerk, or in some other ca- 
pacity, in order to increase his little store by additional savings 
from wages, before he commences business on his own ac- 
count. To be in the receipt of wages is not in America, as it 
generally is in Europe, to be entirely dependent upon wages. 
The person employed not unfrequently lends capital to his em- 
ployer, and is thus placed upon an equality with him, and 
saves his self-respect, though he is " working for hire." One 
who either owns, or has the power of purchasing, a small farm, 
will yet " hire himself out," as the phrase is, for a season or 
two, in order to obtain the means of stocking his land, or oth- 
erwise facilitating his future enterprise. 

Should wages be low, however, persons of small means see 
little advantage in postponing their introduction to business, 
and are tempted to employ their own capital at once in some 
independent occupation. There are innumerable openings for 
private adventure, which require only an adventurous spirit 
and a very moderate amount of capital or credit. The step 
between the situations of a jom'neyman and a master-mechan- 
ic, a clerk and a small tradesman, a farm-laborer and a small 
farmer, is a short one and very easily taken. If nothing better 
can be done, there is always the resource of removing to the 
West, and becoming a pioneer in the settlement of govern- 
ment land, which is first obtained with a squatter's preemption 
right, and paid for out of the proceeds of subsequent harvests, 
or out of the enhanced value of the land when the neighbor- 
hood begins to be peopled. The tide of emigration westward 
always becomes fuller and stronger in periods of commercial 
depression, the stoppage of manufactories, the low prices of 
agricultural products, and the consequent reduction of the 
rates of wages. A check is thus immediately applied to the 
fall of wages, which do not sink as low as might be expected 
from the general depreciation of property and diminution of the 
rate of profit. If wages should be considerably lessened, few 



WAGES. 201 

operatives for hire could be had, except those of foreign origin. 
Many have a home in the rural districts, to which they can re- 
tire in such an emergency, and wait for a return of the prosper- 
ous times which first tempted them to leave the paternal roof, 
and commence work for high wages in a manufacturing town. 

Again, hired laborers easily become small tradesmen or 
master-mechanics, because the business of the manufacturer, 
the merchant, and the artisan is here not so much concen- 
trated in the hands of a few persons with large capitals as it 
is in England. The competition of many, each having but a 
small stock in tools or trade, is not so easily crushed out by 
the monster undertakings of large houses wielding an im- 
mense capital, who can outlive the reverses of trade or the 
periods of depression in the market that are usually fatal to 
persons of smaller means. Reverses happen and failm'es 
ensue, oftener even than in England, and to the large and 
small capitahsts ahke ; but, as already mentioned, there are 
great facihties here for bankrupts to recover their position 
and try again. Profits and losses are great, speculation is rife, 
and great fortunes are acquired and dissipated with marvel- 
lous rapidity. Hence there is great instability, but also much 
life and enterprise, in trade, and in all departments of industry. 
I have already explained some of the causes of the peculiar 
mobihty of society, the ease and frequency of the inter- 
change of social position, which is one of the characteristic 
features of American life, and a necessary result of our polit- 
ical and social institutions. The particular consequence of it, 
to which I wish here to direct attention, is, that it keeps down 
the number of laborers for hire, in spite of the rapid increase 
of the population, and keeps up the rate of wages, or at least 
prevents it from faUing so rapidly as it would otherwise do. 

Here, also, is the explanation of the restless, migratory spirit, 
and the want of local attachments, which have so often at- 
tracted the attention of foreign observers. Of the population 
of three of our Western States, Michigan, Iowa, and Wiscon- 
sin, amounting in the aggregate to nearly one million, accord- 
ing to the census of 1850, only 25 per cent were born within 
the limits of these States in which they are domiciliated, 
about 20 per cent were born in foreign countries, and over 51 
per cent had their nativity in other States, though stiU within 



202 



WAGES. 



the limits of the Union ; of about 4 per cent, the places of par- 
entage were unknown. In European countries, the bulk of 
the population work for hire, and are too poor to be able to 
change their locality; they lack rather the ability than the 
disposition to emigrate. But both in Europe and America, 
the rule holds, that, in general, only the poorer people, the 
laborers for wages, are inclined to seek a new home. If, 
therefore, within twenty years, about half a million of our 
people have migrated into these three States, it is a proof that 
the laboring class here generally have the pecuniary means for 
such migration, or, in other words, they have a small capital, 
which, if they saw fit, (and many of them actually adopt such a 
course,) they might employ in establishing themselves in busi- 
ness on their own account, in the places of their nativity, and 
thus ceasing to work for wages. Taking the whole population 
of the United States together, according to the same census, 
it appears that about 4,175,000 native-born white Americans, 
or over 21 per cent of the whole number, are now resident in 
other States than those in which they had their nativity. 

The doctrines of the English Political Economists respect- 
ing wages, that any increase of the laboring population is 
necessarily an evil, as it increases the demand for the means 
of subsistence without proportionally increasing the supply of 
those means, and as it increases the competition in the labor 
market, thereby depressing the rate of wages ; that the natural 
or necessary rate of wages is the smallest sum that will pur- 
chase those articles for a family which, according to the cus- 
tom of the country, are regarded as requisite for the necessaries 
and decencies of life, or, in other words, that the only limit to 
the depression of wages is this conventional standard of what 
is absolutely requisite for the maintenance even of the poorest 
family, — these doctrines, I say, cease to be applicable, or to 
have even the appearance of truth, here in the United States. 
Our natural standard of wages is, not the smallest sum which 
will enable the temperate and industrious native-born laborer 
to support a family with decency, but the smallest that wiU 
enable him to do not only thus much, but to amass capital, — 
that will induce him to forego the independence and the other 
advantages of trading or working for himself. A true regard 
for the interests of the class to which he belongs would lead 



WAGES. 203 

us to seek rather to lower, than to elevate, his idea of what is 
necessary for this end. The love of independence, the thirst 
for adventure, the hope of drawing one of those glittering 
prizes that often reward a daring spirit, though accompanied 
with a vast proportion of blanks, tempt far too many to aban- 
don the safe course of slowly collecting a moderate property 
by savings from wages. Many a bankrupt farmer, tradesman, 
or master-mechanic might have safely earned independence by 
continuing to work for hire. 

The progress of the population, unparalleled as it has been 
for rapidity, has been far from producing here what the Eng- 
lish Economists regard as its necessary result, — the depression 
of wages. The real value of wages, or the quantity of the ne- 
cessaries of life which they will purchase, may be rather said 
to have steadily increased in this country ever since the begin- 
ning of the present century, when our population was less than 
one fourth of its present amount. Neither can the phenome- 
non be wholly explained by the recent date of our settlements, 
nor by the extent of fertile, unoccupied land in our Western 
territory. It is only by comparison that the States on our At- 
lantic border, in which this phenomenon of high wages is 
exhibited, can be called recent settlements. Most of them are 
already over two hundred years old, and have long since passed 
beyond the stages of colonial infancy and childhood. True, 
the drain that is caused by the constant migration westward 
tends to explain the effect ; but the question remains, why a 
similar result is not produced even in England ; for, as I have 
already remarked, the way from Massachusetts to Iowa, Kan- 
zas, and Minnesota, is nearly as long, and quite as expensive, 
as from Dublin and Liverpool to Nova Scotia and Canada. I 
attribute the result, therefore, to moral rather than to physical 
causes, — to American institutions, more than to the fact that 
America is still a new country, and is rich in fertile and yet 
unoccupied land. The mobility of society, the wider distribu- 
tion of property, the absence of castes, la carriere ouverte aux 
talens, and other peculiarities created and fostered by our laws, 
are alone sufficient to account for the phenomenon. 

The only two causes which strongly tend to a depreciation 
of wages in this country are the vast and constantly increas- 
ing immigration of foreigners, and the discouragement of our 




204 WAGES. 

manufactures through the want of a protective tariff. These 
two causes, in a great degree, work together, and their combined 
action may soon produce as lamentable an effect upon wages 
in the United States, as other agencies have caused in Great 
Britain and Ireland. At present, our institutions are pre- 
served, and general content exists among the people, because 
no class in the community finds itself doomed to irretrievable 
penury, and not one individual is without the well-grounded 
hope of improving his condition, and perhaps of rising even to 
high rank in the social scale. But let the rate of wages here 
be reduced to what the English Economists regard as their 
natural and necessary standard, — that is, to a bare sufficiency 
for subsistence from day to day, — and the class of laborers, 
who must always form the majority in any community, and 
who, with us, also have the control in politics, will not be sat- 
isfied without organic changes in the laws, which will endan- 
ger at once our political and social system. Oiu" immunity 
thus far ought not to betray us into a blind confidence for the 
future. A few years have produced a marvellous alteration in 
our prospects, and the change has not been altogether for our 
advantage. The Atlantic has been bridged by steam, and the 
ties which connect us with Great Britain, and fink our com- 
mercial and social well-being with hers, are strengthening every 
day. Ireland is depopulating itself upon our shores ; and al- 
ready the rate of increase from abroad is two thirds as great 
as that of the natural growth of the population at home. Dur- 
ing the year 1854, the number of immigrant foreigners brought 
by sea to our shores was 427,833 ; the average for the last four 
years exceeded 400,000 annually. The annual average for the 
three years ending December 31, 1845, was but 121,000, or 
considerably less than one third of the present average. In 
one particular, this result is inevitable ; we might as well try 
to dam up the Mississippi with bulrushes, as to stop this great 
westward migration of the nations. But we may enlarge the 
field of employment, and increase the number of the applica- 
tions of industry, so that this immense influx shall not produce 
its full effect in depressing the price of labor.* 



* The number of passengers arriving in the United States by sea from foreign 
countries, from September 30, 1843, to December 31, 1854, was as follows : — 



WAGES. 205 

The tide of emigration was first turned with overwhelming 
force upon our shores in 1847, a year of famine in Ireland and 
Scotland, and of great distress in several other parts of Europe. 
The census taken by the EngHsh government in 1851 not 
only affords evidence of the extent of the calamity then en- 
dured, but has brought to light another startling fact, which is 
without a parallel in the history of the world ; — a great and 
fertile country, inhabited by a civilized people, enjoying a mild 
and equitable government, and yet, without the agency of 
war, pestilence, or any sudden paralysis of its industry from 
external causes, actually becoming depopulated by famine and 
emigration. 

The population of Ireland in 1841 was 8,175,124. Assum- 
ing that the natural rate of increase of the Irish people for ten 
years is twelve per cent, which is the estimate of the Census 
Commissioners for 1841, it follows that the number in 1851, 
if it had not been diminished by the two causes just men- 
tioned, would have been 9,156,139. But the actual popula- 
tion of Ireland in 1851 was 6,515,794 ; that is, 1,659,330 less 





From 


To 




Males. 


Females. 


Sex not stated. 


Total. 


Sept. 


30, 


, 1843, 


Sept; 30, 


, 1844, 


48,897 


35,867 




84,764 


" 




1844, 


C( 


1845, 


69,188 


49,290 


1,406 


119,884 


" 




1845, 


(( 


1846, 


90,973 


66,778 


897 


158,648 


" 




1846, 


(( 


1847, 


134,750 


96,747 


1,057 


232,554 


" 




1847, 


(( 


1848, 


136,128 


92,883 


472 


229,483 


tt 




1848, 


« 


1849, 


179,253 


119,915 


442 


299,610 


" 




1849, 


(c 


1850, 


200,903 


113,392 


1,038 


315,333 


" 




1850, 


Dec. 31, 


1850, 


38,282 


27,107 


181 


65,570 


Dec. 


31, 


1850, 


11 


1851, 


245,017 


163,745 


66 


408,828 


" 




1851, 


11 


1852, 






398,470 


398,470 


<( 




1852, 


(( 


1853, 


236,596 


164,181 




400,777 


(C 




1853, 


K 


1854, 


284,887 


175,587 




460,474 



1,666,874 1,110,492 404,029 3,174,395 

Prom the numbei* of arrivals here given for 1854, we should dteduct 32,641, as the 
number of citizens of the United States returning home, leaving 427,833 immigrant 
foreigners, as stated in the text. A corresponding reduction should be made for the 
other years ; but, on the other hand, this table includes only the number of arrivals 
by sea, and takes no account of those who came into the country over our inland 
frontier, from Canada and elsewhere. The number of foreigners entering the Unit- 
ed States by land would be more than an offset for the number of Americans in- 
cluded in the preceding table among the arrivals by sea. 

Of those who arrived in 1854, about 215.000 are reported as coming from Ger- 
many, 101,606 from Ireland, over 58,000 from Great Britain, and 13,317 from 
France. In former years, the proportion of Irish immigrants was much greater. 

18 



206 WAGES. 

than it was ten years before, and considerably over two and a 
half millions less than what it should have been, if the natural 
law of increase had not been checked.* 

What has become of these millions of human beings ? The 
official returns of the total emigration from the United King- 
dom for the ten years ending in March, 1851, show that only 
1,741,476 persons emigrated during this period. This includes 
the drain from England and Scotland also ; but it is probable 
that nearly as many Irish passed over into the sister island as 
would make up for the number of natives who left it to go 
abroad. And yet there remain about 900,000 Irish to be ac- 
counted for, — an immense loss of population, to be attributed 
to famine and the diseases consequent upon extreme misery 
and want. And the drain still continues ; a panic seems to 
have seized the population of Ireland, and they rush to the 
seaports to embark for any other portion of the earth, as if the 
whole island labored under a curse. The emigration for 1849 
and 1850, amounting to 432,491, is included in the numbers 
already given. But in 1851, we learn that 254,537 Msh emi- 
grants left their native land ; 224,997 left in 1852, and 199,392 
in 1853 ; thus making a total of 678,926 persons who quitted 
Ireland during the next three years after the last census was 
taken. The population of the island at the close of 1853, 
therefore, cannot have amounted to six millions. The total 
emigration from the United Kingdom of Great Britain and 
Ireland, for the three years ending in December, 1853, (includ- 
ing the numbers already given for Ireland,) amounted to 
1,033,537, a number somewhat exceeding the natural increase 
through the excess of births over deaths, so that the population 
of the kingdom actually declined during this period. 



* The actual rate of increase in Ireland from 1831 to 1841 was only five per cent. 
But during this period, the causes had already begun to operate, which, in the suc- 
ceeding decade, had so remarkable an effect in thinning the population. In the 
preceding ten years, 1821 to 1831, the rate was fourteen per cent, which is about 
two per cent lower than the corresponding rate in England for the same period. 
There is reason to believe that the Irish tend to multiply faster than the English or 
the Scotch ; that is, that the births among them are proportionally more numerous. 
The Irish Census Commissioners show that their estimate, which I have adopted in 
the text, is a safe one, by proving from the returns that 572,464 persons emigrated 
from Ireland during the ten years preceding 1841, — a number sufficient to raise the 
proportion for that decade from five to twelve per cent. 



WAGES. 



207 



I do not dwell upon these facts merely because they afford 
a spectacle and a problem which may well claim the attention 
of the whole civilized world. They have a peculiar meaning 
and pertinency for us here in the United States ; they must 
affect our future prosperity, whether for good or ill, far more 
even than that of Great Britain. It is to our shores, not to 
those of Great Britain and Ireland, that this great Irish exodus 
is directed. These exiles are coming to us, mostly in a state 
of great destitution, bringing with them Irish habits, and Irish 
willingness to live in squalor upon the smallest pittance that 
will support life. Abeady they constitute, either by them- 
selves or in connection with the Germans, almost the whole 
class of om: menial or domestic servants in the non-slavehold- 
ing States, and of rude laborers in the construction of railroads 
and other public improvements. Cheapness of provisions is 
not the attraction that brings them here ; at this moment, all 
the common articles of provisions are as cheap in Ireland as in 
the Atlantic States of this Union ; many of them are cheaper. 
Nor is it comparative freedom from taxation which they seek ; 
for the annual amount of Irish taxes is only about ten shillings 
a head, which hardly exceeds the burden of government here 
in America. But they come in quest of constant employment 
and higher wages. These are the tangible tokens of our pros- 
perity, the causes of the general well-being of our people ; and 
these have made the United States a harbor of refuge for the 
poor of the civilized world. And we have proof that the Irish 
have succeeded in obtaining in America what they came to 
seek, — wages which should suffice, not only to support life, 
but to enable them to effect considerable savings. The remit- 
tances which they are making to alleviate the misery of their 
relatives and friends at home, or to enable them to emigrate to 
this country, have reached an amount that hardly seems cred- 
ible, though the statistics of the subject, collected by the Brit- 
ish government, cannot be questioned. It appears that the 
amounts remitted from America to Ireland through the banks, 
exclusive of sums sent by private hands, amounted, in 1848, 
to £ 460,000 ; and that they steadily increased, till, in 1853, 
they reached the prodigious sum of X 1,439,000, or about 
seven milhons of dollars. It is probable that a portion of this 
sum is remitted for investment, a favorable opportunity being 



208 WAGES. 

afforded for the purchase of land by the proceedings of the 
Commission for the Sale of Irish Encmnbered Estates. Thus 
the Irishman comes to America as a pauper, and in a few- 
years collects the means of returning, if he sees fit, to his na- 
tive country as a land-owner. 

Wages depend, as the English Political Economists are 
fond of remarking, upon the ratio of population to capital and 
employment. They ought to rise, then, as the numbers of the 
people diminish, though trade and manufactures should only, 
to use an expressive phrase, " hold their own " ; and they 
should rise still more rapidly, if, at the same time, trade and 
manufactures be remarkably prosperous, and capital be stead- 
ily increasing. But it is a surprising fact, that although Ire- 
land has lost during the last ten years over two millions of her 
people, being one fourth part of her whole population, and 
though there has been a considerable influx of capital into the 
country, owing to the settlement and improvement of the En- 
cumbered Estates, " very httle improvement, if any, has oc- 
curred in the rate of wages of labor in the districts most 
depopulated by emigration." This is the language of the Irish 
Poor Law Commissioners, in their Annual Report made in 
1853. " In January last," they say, " we obtained returns 
from our Inspectors, relating to nearly the whole of Ireland, 
showing the comparative rate of wages in the present year 
and in several past years, summaries of which " are given in 
the Report. " In very few departments of labor does the 
money rate of wages appear to have been higher in the be- 
ginning of 1853 than it was in 1845, the year before the com- 
mencement of the famine." True, the condition of the 
peasantry had improved, as the same amount of wages would 
purchase a greater quantity of provisions, as employment could 
be more constantly obtained, and as the number of paupers 
was much smaller, this last result being directly attributable 
to the emigration. The fact that money wages have not risen, 
can be explained by the previous great redundancy of the la- 
boring population, owing to the narrowness of the field of 
employment caused by the almost exclusive devotion of the 
people to agriculture. "We have here a strong corroboration, 
then, of our previous doctrine, that a country cannot become 
wealthy whose inhabitants are chiefly or altogether occupied 



WAGES. 209 

in tilling the ground, whatever may be the fertility of its soil 
or the favorableness of its situation. 

The history of Ireland shows the inevitable consequences of 
free trade with a country having so vast an aggregate of capi- 
tal as Great Britain, and reaping the fruits also of the skill and 
experience acquired during a strict enforcement of the protec- 
tive policy for two centuries. The legislative union of the 
two countries, at the beginning of the present century, broke 
down the few barriers which formerly limited their intercourse, 
and left them to compete on what the English Economists 
consider as equal terms. Till this epoch, whatever political 
evils Ireland may have endured, her social state was not in 
any marked degree inferior to that of England. The habits of 
her people, it is true, were not so neat and industrious ; but 
wages were not reduced to a starvation limit, and her cottiers 
generally had enough to eat and to spare. But unrestricted 
intercourse with England stifled the small beginnings of her 
manufacturing industry ; for her people could purchase from 
the sister country even all the products of the small mechanic 
trades and arts cheaper than they could, at the time, manufac- 
tm'e them for themselves. They bought in the cheapest mar- 
ket, forgetting that they had nothing but the cereal grains, 
pigs, potatoes, and butter, to offer in exchange, and that the 
production of these articles would not afford employment to 
half the industry of the people. Manufactures could never 
gain a foothold among them, save in the North, where a col- 
ony of canny Scotch introduced the culture of flax, made linen, 
and have since kept themselves out of the abyss of poverty 
into which the rest of the island has been plunged. So feeble 
were the means of the native Irish for keeping up trade by ex- 
portation, that their consumption both of domestic and foreign 
goods dwindled almost to nothing. Mr. Martin, one of the 
latest and ablest statistical writers upon Irish affairs, cannot 
suppress his astonishment, that "the consumption of British 
manufactm-es in Ireland is not more than one guinea per an- 
num for each inhabitant, whereas the negroes in the West 
Indies consume each five pounds' worth annually." But the 
reason is obvious enough ; the negroes in the West Indies 
have sufficient employment for their industry in the produc- 
tion of sugar, coffee, and pimento, in regard to which they are 
18* 



210 



AVAGES. 



not exposed to Transatlantic competition. Having enough to 
sell, they are conse(iuently able and willing to buy. But the 
Irish have nothing to sell except the provisions which they 
take from the mouths of their children. So they have gone 
on, constantly exporting a larger share of their pigs, potatoes, 
and butter, till they have at last ceased to preserve any to sat- 
isfy their own hunger. " The most remarkable thing," says 
Mr. Martin, " is, that, even during the recent famine, there were 
large exports of provisions from Ireland." While this famine 
was at its height, upwards of three millions of persons were 
fed at one time by jiubjic charity.* If these are tiie consequen- 
ces of free trade with England, and exclusive addiction to agri- 
cultural pursuits, we may well call for the restoration of a 
protective policy here in the United States. 

But the danger in this country is still greater, owing to the 
immense inllux of foreigners who are attracted hither by the 
higlier wages of industry, and whose presence and competition 
with the native operatives are likely to effect a general and great 
depreciation in the price of labor. Besides the natural rapid 
growth of our population, an annual addition to our numbers 
of over 400,000 inmiigi'ants, all of them, except an insignifi- 
cant fraction, being of the poorest class, cannot but produce a 
marked effect of some kind, even if the field for the employ- 
ment of industry here were widening under the most favorable 
circumstances. Many of these exiles are Irish, who have been 
accustomed to regard six shillings (|^ 1.50) a week as liberal 
wages for the father of a family, even when they could get 
employment only for half of the time.f 

* " Neither ancient nor modern history can furnish a parallel to the fact, that np- 
wards of three millions of persons were fed every day, in the neighborhood of their 
own homes, by administrative arrangements emanating from, and controlled by, one 
central oflice." — The Irish Crisis, by C. E. Trevelyan, Secretary to tlic Treasury. 

t Seven years before tlic occurrence of the Irish famine, that wild genius, Mr. 
Carlylc, beheld the inevitable eflcct, u]ion the wages of Englisli workmen, of the in- 
flux of tlic Irish into ICngland, and tlius, in his quaint fasiiion, wailed over it : — 

" Crowds of miserable Irish darken all our towns. The wild Milesian features, 
looking false ingenuity, restlessness, unreason, misery, and mockery, salute you on 
all highways and byways. The English coachman, as lie whirls ])ast, lashes the 
Milesian with his whip, curses liim with his tongue; the Milesian is holding out his 
hat to beg. He is the sorest evil this country has to strive with. In liis rags and 
laughing savagery, lie is there to undertake all work that can be done by mere 
strength of hand and back, for wages that will purchase him potatoes. He needs 



WAGES. 211 

Though the number of Irish who have crossed over into 
Great Britain probably does not equal one fourth of those who 
have found a refuge in the United States, Mr. J. S. Mill, who 
generally opposes the interference of government on any occa- 
sion, makes this extraordinary admission : — "If there were no 
other escape from that fatal immigration of the Irish, which 
has done and is doing so much to degrade the condition of our 
agricultural, and some classes of our town population, I should 
see no injustice, and the greatest possible expediency, in check- 
ing that destructive inroad by prohibitive laws." 

But the field for the employment of industry in the United 
States is not widening. An alteration of the tariff in 1846 
paralyzed for a time the chief branches of manufactures, and 
brought down the prices of bread-stuffs and other provisions, 
for several years, to a point which gave the farmer no tempta- 
tion to raise more of them than were necessary for home con- 
only salt for condiment ; he lodges to his mind in any pig-hutch or dog-hutch, roosts 
in out-houses ; and wears a suit of tatters the getting off and on of which is said to 
be a difficult operation, transacted only on festivals and the high tides of the calen- 
dar. The Saxon man, if he cannot work on these terms, finds no work 

And yet these poor Celtiberian Irish brothers, what can they help it 1 They cannot 
stay at home and starve. It is just and natural that they come hither as a curse to 
us. Alas ! for them too it is not a luxury. The time has come when the Irish pop- 
ulation must either be improved a little, or else exterminated Every man 

who will take the statistic spectacles off his nose, and look, may discern in town and 
country, that the condition of the lower multitude of English laborers approximates 
more and more to that of the Irish competing with them in all markets ; that what- 
soever labor, to which mere strength with little skill will suffice, is to be done, will 
be done, not at the English price, but at an approximation to the Irish price; at a 
price superior as yet to the Irish, that is, superior to scarcity of third-rate potatoes 
for thirty weeks yearly ; superior, — yet hourly, with the arrival of every new steam- 
boat, sinking nearly to an equality with that." — Chartism, by T. Carlyle. 

Mr. De Quincey, in his " Logic of Political Economy," observes : " The true ruin 
of Irish pauperism to England and Scotland is not of a nature to be checked by any 
possible Poor Bill. This ruin lies, first and chiefly, in the gradual degradation of 
wages, English and Scotch, under the fierce growth of Irish competition ; secondly, 
in the chargeableness of Irish pauperism, once settled, upon funds English and 
Scotch. In Scotland, the case is even worse at present than in England." At Pais- 
ley, in 1842, "the sheer impossibility of feeding adequately the entire body of claim- 
ants, coerced the humane distributors of the relief into drawing a line between 
Scotch and Irish. Then it was that the total affliction became known, — namely, the 
hideous extent to which Irish intruders upon Scotland had taken the bread out of 
her own children's mouths. As to England, it has long been accepted as a fair state- 
ment, that 50,000 Irish interlopers annually swell the great tide of our native in- 
crease " ; or about half as many as now annually come to the United States, and 
about one eighth part of our total foreign immigration. 



212 WAGES. 

sumption. The effect, so far as agriculhire was concerned, 
was suspended in 1847, and partially in 1848, by tlie potato- 
rot in Ireland, and the partial failure of the crops in England 
and on the Continent, which caused a large demand for Amer- 
ican articles of food to be exported. But the demand and the 
price fell ofl[' again in subsequent years. In 1850 and 1851, 
the average price of flour in our Atlantic seaports was about 
five dollars a barrel, a price at which the farmers of the West 
cannot afford to export it at all, except for the purpose of re- 
lieving a glutted market by a sacrifice.* Meanwhile, the sale 
of British manufactures in this country, to the great depression 
of our doniestic industry, rapidly increased. Our imports of 
the manufactures of wool, cotton, and iron, for the year ending 
in June, 1851, had become forty-three per cent, and for that 
ending in June, 1853, one hundred and twenty-five per cent, 
greater than they were the year before the alteration of the 
tariff. To pay for these extravagant importations, we were 
obliged to sell our agricultural products at the reduced price 
just mentioned, and to export an iumiense amount of Califor- 
nia gold besides. 

The effect upon the demand for labor in manufacturing op- 
erations in the United States may be very brietly illustrated. 
In Pennsylvania, the number of blast furnaces for the produc- 
tion of iron from the ore was 304, capable of making half a 
million of tons annually. Within three years after the effects 
of the new tariff' began to be felt, 167 of these furnaces, or 56 
per cent, were put out of blast, and the iron made by the re- 
mainder was 49 per cent less than the quantity previously 
manufactured. There were also 200 establishments for the 
manufacture of v^TOUght iron, and they produced about 200,000 
tons annually ; within two years after the enactment of the 
new tariff, their product fell off' 33 per cent, and the manufac- 
ture generally ceased to yield any profit, and was continued 
onlv to avoid a heavy sacrifice in the cost of the machinery .f 



* The present enhanced price (1855) of American provisions and bread-stuffs 
does not atTeot this avo;iuneiU. A deficiency of the crops in England, the war with 
Kussia, and the disturbing ettect upon the prices of all commodities of the great in- 
flux of Californian and Australian gold, is the cause of this enhanced price, which, 
to a considerable degree, is merely nominal. 

f To the suggestion, that these unfortunate results may possibly be attributable to 



WAGES. 213 

The capital invested in the 504 iron works in Pennsylvania 
exceeded twenty millions of doUars ; and the number of per- 
sons directly employed in them, when all at work, would be 
30,103. Reckoning also the hands employed in mining and 
transporting coal and ore to the works, and in transporting the 
finished iron to market, we have a grand total of 41,616 men 
dependent on the iron business in Pennsylvania alone. This 
State probably produces half of all the iron manufactured in 
the United States ; and as the statistics now given leave no 
doubt that at least one half of the workmen formerly engaged 
in making iron were dismissed, it is certain that the new tarijff 
threw out of employment 40,000 laborers in this business 
alone. Most of these discharged workmen necessarily became 
farmers and agricultural laborers, and, by their competition, 
tended to reduce the prices, already ruinously low, of agricul- 
tural produce. 

This is not all. Within three years after this reduction of 
the tariff, the price of the imported iron began to rise rapidly, 
and in 1852 and 1853, it was even higher than it had been be- 
fore the ruin of the home manufacture. Then, at a great cost, 
the old business was resumed, the deserted works were re- 
paired, the machinery replaced, and the manufacture was 
again in the full tide of activity, but subject to another decline 
and fall with the next fluctuation in the foreign market. The 
injury done to American industry arises not so much from the 
quantity, as from the ruinous fluctuations in price, of the im- 
ported commodities. What is needed from a protective tariff" 
in this country is, to prevent the foreign article from being fre- 
quently sent hither to be sold below its cost, in order to reheve 
the glutted English market. The aggregate cost of iron to 
American consumers, during the eight years preceding 1854, 
was undoubtedly greater than if the reduction of the duties 
through the tariff" of 1846 had never taken place. 

There are no means of ascertaining precisely the eff"ect pro- 
duced by the new tariff" on the manufactures of cotton and 

over-trading, and not to the tariff of 1846, the conclusive answer may be made, that, 
in the year when the production of Pennsylvania iron was greatest, the country im- 
ported over 50,000 tons of pig and bar iron, exclusive of chains, wrought-iron, hard- 
ware, &c. A manufacture cannot be deemed excessive which is insufficient to 
supply the home market. 



214 



WAl.KS. 



wool. Acoonlin^ to iho cimisus of I SAO, ilu^se nianufncfnrcs 
iluMi i:;i\V(* (MuployiiuMil. to up\v;u'ils ol' ;")"),()()() in:ilt> t^piMwlivos, 
iiiul to oviM" 7r),()(H) iVmaK^s, ;t lumibcr i)roh:\l>lv not so great 
1>Y AD i>»M" i'(Mit ;is it wouKl liiivo Ixmmi, but (ov \\\c itHliu-tioii of 
duties ill ISI(>, 'I'Ik^ vicissitiuU^s to which these in;uml':u"tnrers 
\\A\c betMi <^\pos<>il, h;ivt> not been iU^stnielive to many works 
!\h'(>;>dy in e\ist(Miee ; but tluMH^ has btnvu uo sueli ilevelopnuMit 
or t>\teusii)u o( them ;»s tin* interests of the eountry recjuired. 
It is uoi eniuii^h lor lh(> peeuhar situatic>n in wliieh the people 
o[' this eountry are now phn-tnl, that tl\e great ih^partments of 
industry sh(niUl be abU> merely to sustain th(Mnselv(>s, by a 
great (Mlort, at {\\c point wlui'h they liad rt\u'hc>d ten years ago. 
They nmsl be ili^veKiped and nmltiiWieil at a rate proporliiMied 
at. least ti> the raj)id grmvth o\i our pi>puhilion bt>th from native 
an<l foreign sonrec^s. t)therwis(\ tht^ prolits of eapital ami the 
wages o[' hxhor unist sink to the level at whieh they have long 
restiHJ in l^rt^it Britain. 'I'he inevitable eons(>quenee of free 
trad(> and i'(instanilv iuenwsing ei>nunereial intercourse be- 
tween the two I'oiuitries uuist be, io i^stabiish tuuong the 
inhabitants of both of i\\cu\ the same stanilanl of material 
well-being, the same measure and ilistribution of indiviilual 
prtisperity. Cirt>at Britain is now pouring upon us in a full 
tide lH>th the surj>lus of her populatiiMi ami tiu> jM-oiluets of her 
ovtM-taskt\l manufaeturing industry. She is giving us umre 
mouths to ftvd, at tlie mouuMit when she is taking away from 
us th<^ means of feeiling them in any other way than by for- 
I'ing them into agru'ultural industry, ami thus i-lu\ijiening still 
farther the agrieultural prcnluets whii'h alone she eau receive 
from us in e\i'hang(\ Tlu^ ocean, which once separated us, 
steam has ci^itrai-ted \o a span. b\>r all purposes of frei> iu- 
tercoursi\ wt^ an^ now virtually two contiguous countries, sep- 
arated by uo momuain barriers, by uo dillerences of race, 
language, im- pi^litv, by no tumlauuMital dissimilarity of our 
political institutions, ami governed by the same system of 
nmnicipal law. We are rapidly becoming as much one petv 
pk^ as tht^ haiglish and tlu' Irish, or tla* l*aiglish and the 
Seotch. To expei't that, in two countries thus situateil, with- 
out any special ilirection of public policy towanls maintaining 
some barri(M- btMwinm them, the pressm'c of population, the 
prolits iM'i'ajntak and the wages of labor can long remain very 



DIFFERENCES OF WAGES. 215 

unequal, would be as idle as to bcilicive that, without the; erec- 
tion of a dam, water could be maintained at two dillerent 
levels in the same pond. Throw down the little that remains 
of our protective system, and let the emif^ration from (^Jreat 
Britain and Ireland to our shores increase to half a million an- 
nually, and within the lifetime of the present generation, the 
laborer's hire in our Atlantic States will be as low as it is in 
England. Our manufactures would flourish then, as those of 
Great Britain flourish now ; cheap labor is the only requisite 
for placing them upon the same level. It is not, then, for the 
sake of the capital now embarked in our manufa(;turing enter- 
prises, that we would advocate a return to what has been well 
denomin-ated "the American policy." But that th(5 bulk of 
our laboring population should fall into that condition where 
they would be exposed to such evils as have visited the labor- 
ing classes of Great Britain and Ireland during the last ten 
years, — that the ncxn^aary standard of wages, as the English 
economists call it, should be here, as well as there, the smallest 
sum which will give a mere subsistence, — this we should re- 
gard as the greatest calamity which the folly of men or the 
wrath of Heaven could bring upon the land. 



CHAPTER XV. 

THE CAUSES OF DIFFERENT RATES OF WAGES IN DIFFERENT 
EMPLOYMENTS. 

The effect of competition upon the rates of wages in differ- 
ent employments has been admirably illustrated by Adurri 
Smith, It is matter of common observation, that the work- 
men in difffjrcint arts and trades are paid very unequally, if 
their wages be reckoned only in money. A blacksmith usu- 
ally earns more than a farm-laborer; a watchmaker more 
than a blacksmith; a lawyer or a physician — for these also 
are laborers for hire — more than a watch-maker. How can 
such inequalities exist, when competition, the great equalizing 



216 DIFFERENCES OF WAGES. 

agent, is always at work, and tends always to bring profits, 
wages, and prices to a level? Why do not persons leave 
those employments that are underpaid, and flock into those 
which receive more than the average ? The answer is, that 
laborers are paid for their services not only in money, but in 
the various degrees of credit or estimation in which their busi- 
ness is held, in the agreeableness or disagreeableness of the 
occupation, the ease or difficulty of learning it, and in its sev- 
eral other peculiarities ; and that competition is often limited 
by circumstances, so that it is unable to produce its fuU eflfect. 
Competition is free only when all persons are at liberty to 
enter into it ; and men compete for employment in different 
occupations according to their view, not merely of the pecu- 
niary gains which it offers, but of the various circumstances, 
among which the nominal amount of wages is only one, that 
render it more or less desirable. I borrow with some enlarge- 
ment the illustrations of this topic by Adam Smith and other 
economists. 

First, " the wages of labor vary with the ease or hardship, 
the cleanliness or dirtiness, the honorableness or dishonorable- 
ness, of the employment." Thus, the work of a stevedore, 
that of loading and unloading vessels at the wharves, as it is 
more humble, dirty, and fatiguing, is more highly paid, than 
that of a shoemaker. " A journeyman blacksmith, though an 
artificer, seldom earns so much in twelve hours as a collier, 
who is only a laborer, does in eight ; his work is not quite so 
dirty, is less dangerous, and is carried on in daylight and 
above ground. Honor makes a great part of the reward of all 
honorable professions." The profession of a teacher is more 
respectable than that of a dressmaker; and therefore many 
young women, here in New England, will keep school at three 
dollars a week, when they might earn six dollars in the same 
time by ministering to their countrywomen's love of fashion 
and elegance in dress. Occupations which can be pm-sued at 
home are not so largely remunerated as those which must be 
carried on within the precincts of a great manufactory. A 
farmer's daughter, Avho has what is called "slop-work" sup- 
plied to her at home from the cheap-clothing establishments, 
cannot earn one third as much as she would receive for tend- 
ing a loom in a cotton-factory ; but then she can choose her 



DIFFERENCES OF WAGES. 217 

own hours for work or recreation, can rise early or late, and be 
free from any external control. This freedom of action is paid 
for by a diminution of wages. The brakeman employed on a 
railway must receive higher wages than the laborer employed 
in grading the road, as his occupation is a dangerous one ; he 
must be paid for the not improbable event of breaking a leg or 
an arm, or losing his life. The laborers employed in con- 
structing a railroad across the Isthmus of Panama received 
very high pay ; they were compelled to go far from home into 
a climate so pestilential, that probably one half of their num- 
ber perished while the work was in progress. 

" Secondly," says Adam Smith, " the wages of labor vary 
with the easiness and cheapness, or the difficulty and expense, 
of learning the business. When any expensive machine is 
erected, the extraordinary work to be performed by it before it 
is worn out, it must be expected, will replace the capital laid 
out on it, with at least the ordinary profits. A man educated 
at the expense of much labor and time, may be compared to 
one of these expensive machines. The work which he learns 
to perform, it must be expected, over and above the usual 
wages of common labor, wiU replace to him the whole ex- 
pense of his education, with at least the ordinary profits of an 
equally valuable capital. It must do this in a reasonable time, 
regard being had to the very uncertain duration of human life, 
in the same manner as to the more certain duration of the ma- 
chine. The difference between the wages of sldlled labor and 
those of common labor is founded on this principle." 

It should be added, that all persons are not capable of learn- 
ing the more difficult employments, for which a quick eye, a 
dexterous hand, and some natural taste or ingenuity, are often 
requisite. Not all common laborers, after any expense of time 
and training, would make good blacksmiths ; nor are all black- 
smiths capable of becoming first-rate machinists. The com- 
petition for employment in the more difficult trades is therefore 
first fimited by Nature, through the various capacities which 
she bestows upon men ; and secondly, by the necessity of edu- 
cation, which not all, even of those who are naturally gifted, 
have time, money, or opportunity to obtain. Engraving has 
risen to be one of the fine arts, as the talent for practising it 
with the highest success is as rare as that of a great painter or 
19 



218 



DIFFERENCES OF WAGES. 



sculptor. An ordinary engraver may not earn more than a 
watchmaker ; but a single copy of one of the works of Raphael 
Morghen, Sir Robert Strange, Bartolozzi, or Piranesi, now 
commands a high price in the market. In engineering, the 
construction of machinery, and ship-building, great natural 
ability, improved by education and practice, may obtain remu- 
neration so liberal as to appear exti-avagant. The services of 
Paul Moody in superintending the erection of the machinery 
for the manufactories at Waltham and Lowell, and of Tel- 
ford, Stephenson, and Brunei in the gi-eat works of internal 
improvement which they constructed in Great Britain, were 
paid for at rates proportioned to the magnitude of the enter- 
prises which they directed. " In some manual employments," 
says Mr. Mill, " requiring a nicety of hand which can only be 
acquired by long practice, it is difficult to obtain, at any cost, 
workmen in sufficient numbers, who are capable of the most 
delicate kind of work ; and the wages paid to them are only 
limited by the price which purchasers are willing to give for 
the commodity they produce. This is the case with some 
working watchmakers, and with the makers of astronomical 
and optical instruments. If workmen competent to such em- 
ployments were ten times as numerous as they are, there 
would be purchasers for all which they could make, not indeed 
at the present prices, but at those lower prices which would be 
the natural consequence of lower wages," 

In what are called the liberal professions, however, though a 
protracted and expensive education is required for admission 
to them, the rates of compensation, on an average, are very 
low, — sometimes actually lower than in the mechanic trades. 
In the State of Ohio, for instance, and, it may be presumed, 
in most of the other Western States, the salaries of the clergy- 
men are not equal to the w^ages of good journeymen black- 
smiths ; the former do not receive an average of more than 
$ 500 a year ; the latter readily obtain two dollars a day, or 
over $ 600 a year. True, some of the clergymen, especially 
in the Baptist and Methodist denominations, are not liberally 
educated men; but the great majority have completed their 
training both at college and in the professional schools. At 
the bar, also, though a few eminent practitioners make great 
gains, the aggregate earnings of the whole body of lawyers, if 



DIFFERENCES OF WAGES. 219 

equally distributed among them, would hardly equal the aver- 
age wages of the raiechanics. The cause of the discrepancy 
in this particular case, however, will be explained hereafter. 
Physicians may be somewhat better paid on an average, 
though the aggregate earnings of their craft are capriciously 
distributed, an ignorant and impudent quack often obtaining 
more than a competent and thoroughly instructed practitioner. 
This is because there is no certain criterion of the physician's 
skill ; whether the patient lives or dies, it is generally doubtful 
whether the result is to be attributed to nature or the doctor. 

Adam Smith justly attributes the inadequate compensation 
of labor in the liberal professions, first, to the superior dignity 
or honorableness of such labor, which is an offset for the infe- 
rior pecuniary reward; secondly, to the natural confidence 
which every man has in his own abilities and his own good 
fortune, whereby he persuades himself that he shall draw one 
of the few great prizes in the law or the church, instead of one 
out of the many blanks ; and thu'dly, so far as literature and the 
sacred ministry are concerned, to the number of persons who 
are educated for those occupations at the public expense. The 
first point is too obvious to require any farther illustration than 
it has already received ; and the second was considered (see 
page 45), when we were commenting upon what may be 
called " the lottery principle " in human nature, whereby san- 
guine visions, and the pleasurable excitement of a pursuit in 
which success is wholly uncertain, must be made our conso- 
lation for frequent failure. In respect to the last, I borrow the 
language of Adam Smith. " It has been considered as of so 
much importance, that a proper number of young people 
should be educated for certain professions, that sometimes the 
public, and sometimes the piety of private founders, have es- 
tablished many pensions, scholarships, exhibitions, bursaries, 
&c., for this purpose, which draw many more people into those 
trades than could otherwise pretend to follow them. In aU 
Christian countries, I believe, the education of the greater part 
of churchmen is paid for in this manner. Very few of them 
are educated altogether at their own expense. The long, tedi- 
ous, and expensive education, therefore, of those who are, will 
not always procure them a suitable reward, the chm-ch being 
crowded with people who, in order to get employment, are 



220 DIFFERENCES OF WAGES. 

willing to accept of a much smaller recompense than what 
such an education would otherwise have entitled them to ; and 
in this manner the competition of the poor takes away the re- 
ward of the rich." 

In the United States, generally, it may be said, that, through 
the efforts of Education Societies and the founders and bene- 
factors of colleges, the clergy are educated gratuitously, — a 
policy very well designed to prevent pulpits from becoming 
vacant, but not so likely to insure the respectability, the ade- 
quate compensation, or even the sincerity, of those who fill 
them. It is to be feared that many are bribed, through the 
offer of a liberal education without charge, to enter the minis- 
try, though they have no peculiar fitness, and not even any 
strong desire, for the sacred calling. Nay, it may sometimes 
happen, that the parents of a child who is unfitted for almost 
any other pursuit, because weak in body and not very strong 
in mind, may be tempted, by this liberal proffer, to make a 
minister of him, being encouraged to believe, like the mother 
of Dominie Sampson, that " he may wag his pow in a pulpit 
yet," though he cannot wag it to good purpose anywhere else. 

" Olim truncus eram ficulnus, inutile lignum, 
Quum faber, incertus scamnum faceretne Priapum, 
Maluit esse deum." 

In respect to the education, in part gratuitous, which is 
offered by the colleges as a general preparation for the other 
professions, though the effect is certainly to lessen the emolu- 
ments of practitioners by increasing the number of competitors, 
sound policy, or a regard for the best interests of the people, 
requires that it should be continued. Adam Smith, with his 
usual bias towards the principles of free trade, would have the 
whole matter regulated by the natural operation of supply and 
demand, assuming that, if more lawyers, physicians, and liter- 
ary or scientific men are needed, their rates of compensation 
would be raised, and thus more persons would be tempted to 
enter these professions, even at the cost of educating them- 
selves. But the immediate earnings of literary and scientific 
men, as already explained, are inferior to their merits, and 
altogether insufficient for their wants ; while it is of the utmost 
importance for the interests of the public, that a numerous 
class of highly educated men should exist in the community. 



DIFFERENCES OF WAGES. 221 

capable of appreciating each other's efforts, and of aiding the 
progress of letters, science, and invention. Besides, many 
must receive the benefits of a liberal cultmre, in order that the 
few who are able to profit by it in the highest degree may be 
sm-e not to miss the requisite preparatory training, without 
which even their eminent abilities may not produce their 
proper fruits. Many thousands must graduate at Oxford and 
Cambridge, in order that a possible Milton, Newton, or Bent- 
ley may not be hindered from benefiting the world by his 
genius. It is a commonplace remark, that " mute, inglorious 
Miltons " probably rest in every village churchyard. That is 
a short-sighted policy, which would weigh the cost of institu- 
tions of learning against only the average result upon all those 
who are trained at them ; the value to the community at large 
of the services of such men as have been named is literally in- 
estimable ; it would outweigh the expense of founding and 
maintaining universities enough to educate the whole people. 
This consideration is even strong enough to justify the policy 
of educating most clergymen at the public charge ; without it, 
the world might have lost the preaching of Jeremy Taylor, 
Jonathan Edwards, and Thomas Chalmers. 

Thirdly, says Adam Smith, " the wages of labor in different 
occupations vary with the constancy or inconstancy of employ- 
ment. In the greater part of manufactures, a journeyman may 
be pretty sure of employment almost every day in the year 
that he is willing to work. A mason or bricldayer, on the 
contrary, can w^ork neither in hard frost nor in foul weather, 
and his employment at all other times depends upon the occa- 
sional caUs of his customers. He is liable, in consequence, to 
be frequently without any. What he earns, therefore, while 
he is employed, must not only maintain him while he is idle, 
but make him some compensation for those anxious and de- 
sponding moments which the thought of so precarious a situa- 
tion must sometimes occasion." It is easy to see that the 
person who can be employed only a part of the time ought to 
receive higher wages than one who has regular work and con- 
stant pay ; and for evident reasons, his compensation must be 
larger. On account of the irregularity and uncertainty of his 
occupation, fewer persons will be disposed to engage in it; 
thus the competition will be less, and he will be able to raise 
19* 



222 DIFFERENCES OF WAGES. 

his price, until the increased pay affords an adequate compen- 
sation for the inconstancy of the employment. 

In most cases, employers take all the risk ; that is, they in- 
sure regular wages to their hands, whether the work be con- 
stant or irregular, lucrative or insufficient to pay the expenses. 
Thus, the driver of a stage-coach receives the same pay, 
whether the vehicle be full or empty ; and the clerk in a store 
must have his regular salary, though business is sometimes 
duU, and he has little to do. So, also, a ship must be manned 
by sailors enough to take care of her even in a storm ; and the 
consequence is, that in ordinary, pleasant weather, the crew 
may be idle more than half of the time. Sometimes, however, 
the person employed takes the risk, and his wages when he is 
at work, must be high enough to compensate him for occa- 
sional necessary idleness. Thus, the driver of a hackney-coach 
is paid only a certain proportion of w^hat he can earn during 
the day ; and the crews of our American whaling-vessels gen- 
erally " go upon shares," as it is termed ; that is, they have no 
monthly wages, but receive the value of a fixed portion of the 
oil that they take. As ships sometimes come home " clean," 
or without any oil, so that they obtain nothing for one or two 
years' labor, their share of a full cargo ought to exceed, and 
actually does considerably exceed, the ordinary amount of sea- 
men's wages for a voyage of the same length. 

The fourth cause assigned by Adam Smith for variation in 
the rate of wages, is the small or great trust that must be re- 
posed in the person employed. Thus, goldsmiths and jewel- 
lers are paid more liberally than workers in brass or iron, not 
on account merely of their greater skill, and in spite of their 
labor being more agreeable and less fatiguing, but because of 
the greater value of the materials with which they are in- 
trusted. " We trust our health to the physician, our fortune, 
and sometimes our life and reputation, to the lawyer and attor- 
ney. Such confidence could not safely be reposed in people 
of a very mean or lo^v condition. Their reward must be such, 
therefore, as may give them that rank in the society which so 
important a trust requires. The long time and the great ex- 
pense which must be laid out in their education, when com- 
bined with this circumstance, necessarily enhance still further 
the price of their labor." 



DIFFERENCES OF WAGES. 223 

On the same principle, also, those who are intrusted with 
the handhng of much money, such as the cashiers and tellers 
of banks, the treasurers and managers of manufacturing and 
railroad corporations, must receive high salaries. It may be 
thought, perhaps, that there is some degradation in being re- 
warded for common honesty, as men ought to be honest with- 
out being paid for it. So they ought ; but what they are paid 
for is, not honesty, but the reputation for honesty, — that secu- 
rity which is found in their well-known previous lives and 
character, and in the general circumstances of their situation, 
that they will be faithful to their trust. Not all, not even 
many persons, are lucky enough to be weU known to the com- 
munity at large, as deserving full confidence in any office, how- 
ever much exposed to temptation. The competition for such 
offices being thus restricted to a few, they are enabled to raise 
the price of their services. Sometimes security is taken, the 
persons employed being required to give bonds to a heavy 
amount for their fidelity to their engagements. In this case, 
there is no need of their integrity being well known to the 
public at large ; it is enough that they have so far earned the 
confidence of a few as to be able to obtain sufficient bonds- 
men. The contrivance of giving bonds thus opens the com- 
petition, and tends to reduce salaries, but not to make them 
so low as they would be if no bonds were required. 

Fifthly, says Adam Smith, " the wages of labor in different 
employments vary according to the probability or improba- 
bility of success in them. In the greater part of the mechanic 
trades, success is almost certain, but very uncertain in the lib- 
eral professions. Put your son apprentice to a shoemaker. 
and there is little doubt of his learning to make a pair of 
shoes ; but send him to study the law, and it is at least twenty 
to one if he ever makes such proficiency as will enable him to 
live by the business. In a perfectly fair lottery, those who draw 
the prizes ought to gain all that is lost by those who draw the 
blanks. In a profession ^vhere twenty fail for one that suc- 
ceeds, that one ought to gain all that should have been gained 
by the unsuccessful twenty. The counsellor at law, who per- 
haps, at forty years of age, begins to make something by his 
profession, ought»to receive the retribution, not only of his own 
so tedious and expensive education, but of that of more than 



224 DIFFERENCES OF WAGES. 

twenty others, who are never likely to make anything by it. 
How extravagant soever the fees of counsellors at law may 
sometimes appear, their real retribution is never equal to this." 

The average gains of practitioners at the bar are reduced by 
the great number of those who enter the profession without 
depending upon it for support, as they have independent 
means of livelihood, and desire only a genteel excuse for doing 
nothing. Some, also, have recourse to the law, because it is 
not only a highly reputable business, but is an easy mode of 
making the transition to political life. Many thus appear to 
be waiting for clients, who are really on the look-out only for 
a chance of being elected to the legislature or to Congress. 
Though these two classes of persons do not enter actively into 
the competition for fees, their presence diminishes the chances 
of success for those who hope to rise in the profession ; some 
business occasionally falls into their hands, and they increase 
the crowd in the midst of which merit and ability often remain 
hidden from the world. Hence, as Adam Smith remarks, 
while the ordinary income of shoemakers and blacksmiths ex- 
ceeds their ordinary expenditure, it will be found that the 
annual gains of the lawyers, as a body, bear but a small pro- 
portion to their annual expenses. The profession is but a lot- 
tery at the best, even for those who cUligently qualify them- 
selves for it, and found upon it their only hopes of success ; the 
splendor of a few prizes in it is apt to dazzle the judgment of 
many, who, by a cool calculation of the chances, would be in- 
duced to try a different occupation. 

I do not mean that success is more doubtful at the bar than 
in any other business. In this country, undoubtedly, trade is 
equally uncertain, for it is said that three fom*ths of those who 
engage in it become insolvent in the course of the first five 
years ; and of those who escape the gulf of bankruptcy, not 
one in ten succeeds in amassing a fortune. But " uncertainty 
of success," as Mr. Senior remarks, "cannot well affect the 
wages of common labor, since no man, unless he be to a cer- 
tain extent a capitalist, unless he have a fund for his interme- 
diate support, can devote himself to an employment in which 
the success is uncertain." He remarks, moreover, " that there 
are two sorts of uncertainty. In some cases, the hazard is 
essentially connected with the employment itself, and recurs, 



DIFFERENCES OF AVAGES. 225 

ill about an equal degree, at every operation. Smuggling and 
the manufacture of gunpowder are instances. Experience and 
skill may somewhat diminish the risk ; but the best smuggler 
and the best maker of gunpowder probably each suffers an 
average amount of loss. But there are employments in which 
success, if once attained, is permanent. Such is often the case 
in mining. That mining is generally the road to ruin is noto- 
rious in all mining countries ; but there are miners who have 
never suffered a loss. The same may be said of the liberal 
professions. Granting them to be as uncertain as Adam 
Smith believed them to be, the evil to which that uncertainty 
refers is experienced only by those who fail. To those who 
succeed, they afford a revenue eminently safe and regular. 
Their uncertainty is personal. It arises from the error to 
which every man is subject, when he compares his own qualifi- 
cations with those of his rivals. If he be found on the actual 
trial inferior, his failure is irretrievable ; in the other alterna- 
tive, his success is as permanent." 

The inequalities thus far considered proceed jfrom causes 
that are inherent in the employments themselves. But there 
are others, as Adam Smith remarks, which arise from the pe- 
culiar laws and customs of different nations, and which operate 
by obstructing the competition that would otherwise reduce 
wages and profits to a level. If other things are equal, and if 
persons are left to their own choice, they will flock into the 
occupations that are more lucrative, and will desert those 
which are less productive, until the increased supply of labor 
and capital in the former, and the diminished supply in the 
latter, bring about equality between the two classes. But peo- 
ple are not always left to themselves ; hinderances often exist, 
sometimes created by the laws, sometimes only by the habits 
and feelings of the people, which obstruct the free movement 
of labor and capital from one occupation to another. 

The most remarkable of the hinderances existing by force of 
law are the exclusive privileges that were granted to the cor- 
porations, or guilds of trade, which formerly existed in almost 
every city in Europe, but which are now rapidly dying out. 
All the persons practising any one art or trade in a particular 
city, such as the tailors, the brewers, the tanners, the gold- 
smiths, &c., were united into a company, which received from 



226 DIFFERENCES OF WAGES. 

the government by charter the exchisive right to practise their 
vocation. The competition in this art or trade was thus re- 
stricted to those who had been made free of the company ; 
and no person could become free of the trade, till he had served 
an apprenticeship to it, usually for seven years, and had com- 
plied with other regulations, which were often intentionally 
made numerous and vexatious, in order to prevent too many 
persons from entering the business and dhninishing its profits. 
Thus, the number of apprentices which each master might have 
was often determined by law, and sometimes a heavy fee or 
fine was exacted, before the apprentice who had completed his 
term could become free of the craft. " In their greatest pros- 
perity, these fraternities, more especially in the metropolis, be- 
came important bodies, in which the whole community was 
enrolled ; each had its distinct common hall, made by-laws for 
the regulation of its particular trade, and had its common prop- 
erty." Membership became the principal avenue of admission 
to the general franchise of the municipality ; and as the imped- 
iments to becoming freemen were multiplied, the manage- 
ment of civic affairs gradually fell into the hands of a little 
oligarchy. Sometimes, the royal charters expressly vested the 
local government, and even the immediate election of mem- 
bers of Parliament, in small covmcils, originally nominated by 
the crown, and ever after self-elected. But of late years, the 
laws requiring apprenticeship have been repealed or essentially 
amended, and in England, the Reform Bill, together with the 
Municipal Reform Act, has swept away nearly all the exclu- 
sive privileges of these incorporated trades ; but many of the 
companies, especially in London, still exist, having the owner- 
ship and management of large funds, and some local dignities 
and rights, which cause membership of them to be highly 
prized. There are, in all, eighty-one of these incorporated 
trades in London, twelve of tliem being called the Great Com- 
panies, and from one of these the Lord Mayor must be chosen. 
They have become charitable, rather than political or trading 
institutions, and they expend their revenues partly in festivi- 
ties, but principally in pensions to widows and decayed breth- 
ren, the support of schools, &c.* 

* These incorporated trades must not be confounded with what are commonly 



DIFFERENCES OF WAGES. 227 

" All such incorporations," says Adam Smith, " were an- 
ciently called Universities, which indeed is the proper Latin 
name for any incorporation whatever. The University of 
Smiths, the University of TaUors, &c,, are expressions which 
we commonly meet with in the old charters of ancient towns. 
When those particular incorporations which are now pecu- 
liarly called Universities were first established, the term of 
years which it was necessary to study, in order to obtain the 
degree of Master of Arts, appears evidently to have been cop- 
ied from the term of apprenticeship in common trades, of 
which the incorporations were much more ancient. As to 
have wrought seven years under a master properly qualified 
was necessary in order to entitle any person to become a mas- 
ter, and to have himself apprentices in a common trade, so to 
have studied seven years under a master properly quahfied was 
necessary to become a Master, Teacher, or Doctor (words an- 
ciently synonymous) in the liberal arts, and to have scholars 
or apprentices (words likewise originally synonymous) to 
study under him." 

The ostensible purpose of the incorporated trades was like 
that of our modern inspection laws, to insure the good or mer- 
chantable quality of the commodities offered for sale ; this end 
it was proposed to efiect, by ordaining that the articles should 
be manufactured only by practised and skilful workmen, who 



called corporations, instituted for manufacturing, banking, turnpike, or railroad pur- 
poses, here in America ; though the similarity of name and origin has directed much 
unfounelcd political odium against the latter. The old guilds of trade were proper 
monopolies, no other persons being permitted to exercise the craft which was their 
special vocation. But our modern corporations have no exclusive privileges ; any 
individual, or another incorporated company, may begin competition with them in 
the same town or village. Sometimes, indeed, when the object is one of great pub- 
lic utility, as to open a new avenue of transit and communication, a clause is in- 
serted in the charter, that no rival company shall be permitted to build a similar 
road or bridge, parallel to theirs, and within a small distance from it, for a given 
number of years. Some such boon from the legislature may be needed to induce 
capitalists to run the risk of first constructing such a work for the public benefit and 
their own possible emolument. But such privileges are now not often granted, and 
are not always respected, even when the public faith is pledged for them. The 
charter is usually granted only to enable persons of small property to club their 
means, and thus to effect by combination what no individual is rich enough to do 
singly. Hence, as already explained, they are true democratic institutions, on the 
limited partnership principle, which has very recently been legalized and applied 
with much success both in England and America. 



228 DIFFERENCES OF WAGES. 

had served a full apprenticeship to the craft. But as Adam 
Smith remarks, "the institution of long apprenticeships can 
give no security that insufficient workmanship shall not fre- 
quently be exposed to public sale. When this is done, it is 
usually the effect of fraud, and not of inability ; and the long- 
est apprenticeship can give no security against fraud." The 
inspection-mark upon a barrel of flour, or salted meat, or 
pickled fish, or the name of the manufacturer printed upon a 
bale of cloth, is a much better guaranty of the quality of the 
article. Besides, long apprenticeships are not needed, as the 
mystery of any handicraft can be learned in less than a year, 
so that the operative can work, not as speedily indeed, but as 
well, that is, he can turn out as perfect an article, as any vet- 
eran in the business. At any rate, he will be the quickest to 
learn, who has the prospect of being fully paid just as soon as 
he can complete the article in a workmanlike manner, and 
who is furthermore required to pay for the tools and materials 
that he spoils. The real purpose of the guild was to maintain 
a monopoly of the trade, under the cover of which, purchasers 
were obliged to take what they offered for sale, at such prices 
as they chose to affix, or do without the commodity altogether. 
Individual members of the company, it is true, might compete 
with each other ; but their competition was always subject to 
the by-laws enacted by the cov^ncil of the guild. 

Old expedients come up for renewed trial, after the lapse of 
centuries, with only a change of name. The modern Trades' 
Unions, strikes, and associations of operatives, are but the an- 
cient guilds revived, their avowed object being to raise wages 
and prices by diminishing the number of competitors. Even 
here in America, where the utmost freedom of competition has 
been the life of trade, and there are fewer restrictions upon in- 
dustry, either legal or consuetudinary, than in any country 
upon earth, at a recent strilve of the journeyman printers, the 
Union required that only a certain number of apprentices 
should be employed in each office, in proportion to the num- 
ber of journeymen in it, and that M^omen or girls should not 
be employed to set types, though it is an occupation in which 
they are nearly as well fitted to excel as in the use of the 
needle. IVIr. Laing, the distinguished traveller and political 
economist, seriously argues in favor of such measures, on the 



^r-^r 



DIFFERENCES OF WAGES. 229 

ground that " labor itself is a property, entitled to legal protec- 
tion as much as land, or goods, or any kind of property that 
labor produces " ; and that " the supply of the public with all 
the articles of handicraft, or labor of skill, [should be] con- 
fined to those who had acquired a property in that labor." 

Here appears to be a confusion of thought ; labor is rightly 
considered as property, and is most ejffectually protected as 
such, when it can be applied to any purpose, or in any occu- 
pation, which the laborer prefers. To create any impediment 
to the transition of labor from one employment to another, is 
not to protect, but to violate, the essential rights of industry. 
To give to any individual, or any association, the monopoly 
of any article or any employment, is to create in the favored 
class a right of property in other men's labor, — that is, a right 
to prevent all other persons from selecting their own occupa- 
tions, and making the best use that they can of their physical 
and mental powers ; it is also to tax the whole community for 
the benefit of the favored class, by compelling the former to 
pay such a price for the commodity, or such wages for the 
labor, as the latter may require. Prices are equitably adjusted, 
when the seller says to the purchaser, ' Pay me what I ask, or 
manufacture the article for yourself.' The ancient incorpo- 
rated companies and the modern Trades' Unions say, ' Pay 
me what I ask, or do without the article altogether ; you shall 
not have the option of manufactm-ing the article for yourself.' 
How does Mr. Laing suppose, that the operatives in any craft, 
whether they have served a long apprenticeship to it or not, 
can have " acquired a property in that labor " ? Unquestion- 
ably they are entitled to prosecute it themselves ; but they 
have no right, either natural or acquired, to keep other persons 
out of the same employment. 

Adam Smith takes a more correct view of the subject when 
he says : " The property which every man has in his own labor, 
as it is the original foundation of all other property, so it is the 
most sacred and inviolable. The patrimony of a poor man 
lies in the strength and dexterity of his hands ; and to hinder 
him from employing this strength and dexterity in what man- 
ner he thinks proper, without injury to his neighbor, is a plain 
violation of this most sacred property. It is a manifest en- 
croachment upon the just liberty both of the workman and of 
20 



230 



DIFFERENCES OF WAGES. 



those who might be disposed to employ him. As it hinders 
the one from working at what he thinks proper, so it hinders 
the others from employing whom they think proper. To judge 
whether he is fit to be employed, may surely be trusted to the 
discretion of the employers whose interest it so much con- 
cerns." 

These principles, however, are not of universal application ; 
an exception should be made in the case of the restraints that 
are imposed by the laws of most countries upon admission 
into the learned professions. Usually, the purchaser is the best 
judge of the quality of the goods that he buys, and the charac- 
ter of the person that he deals with ; a regard for his own in- 
terest will protect him against fraud more effectually than any 
regulations which the government can devise. But it is not 
so, when he buys the services of a physician. Health or sick- 
ness, life or death, then depends upon the competent informa- 
tion and skill of the person employed by him ; and of these 
qualities he is a very poor judge, as sickness may have been a 
rare occurrence in his family, as the consequences of an error 
may be fatal, and as the event indicates but very imperfectly 
the beneficial or injurious consequences of the medical treat- 
ment pursued. A plausible charlatan may easily impose upon 
the credulity of the public, and many valuable lives may be 
lost before his ignorance and presumption can be fully ex- 
posed. Most governments attempt to protect the community 
against such injury, by multiplying restiictions upon irregular 
practitioners, and extending the full privileges of the profession 
only to those who have completed a prescribed course of edu- 
cation, and have obtained a diploma, or certificate of compe- 
tency, from a board of duly qualified examiners. A similar 
policy is usually pursued with respect to lawyers and clergy- 
men, though the reasons in its favor are not so conclusive as 
in the case of physicians. Ignorance and deception at the bar 
or in the pulpit are more easily detected than in the sick- 
room. 

I have ah-eady intimated that competition for employment is 
sometimes restricted, not only by law, but by the customs of 
the country, or by the habits and feelings of the people. In 
the United States, mobility of fortune, station, and employ- 
ment is the most strildng feature of society ; no impediment 



DIFFERENCES OF AVAGES. 231 

is created by law or fashion to the most frequent and sudden 
changes of position and business. Thus an equalizing process 
is constantly going on with respect both to wages and profits ; 
no one profession or employment can enjoy even a momentary 
advantage, without sharing it among a crowd of competitors. 
In England, it is far otherwise ; a well-estabUshed and clearly 
defined gradation of ranks has existed so long, and has so 
moulded the habits and expectations of the people, that com- 
paratively few think of stepping out of the station or the busi- 
ness to which they were born. The larger emoluments and 
superior advantages of a different position hardly attract their 
notice, and certainly excite no emulation or regret. 

Mr. J. S. Mill has given a lively picture of this condition of 
things, and its consequences. " So complete," he says, " has 
hitherto been the separation, so strongly marked the line of 
demarcation, between the different grades of laborers, as to be 
almost equivalent to a hereditary distinction of caste ; each 
employment being chiefly recruited from the children of those 
already employed in it, or in employments of the same rank 
with it in social estimation, or from the children of persons 
who, if originally of a lower rank, have succeeded in raising 
themselves by their exertions. The liberal professions are 
mostly supplied by the sons of either the professional or the 
idle classes ; the more highly skilled manual employments are 
filled up from the sons of skilled artisans, or of the class of 
tradesmen who rank with them ; the lower classes of skilled 
employments are in a similar case ; and unskilled laborers, 
with occasional exceptions, remain from father to son in their 
pristine condition. Consequently, the wages of each class 
have hitherto been regulated by the increase of its own popu- 
lation, rather than of the general population of the country. 
If the professions are overstocked, it is because the class of 
society from which they have always mainly been supplied 
has greatly increased in number, and because most of that 
class have numerous families, and bring up some, at least, of 
their sons to professions." It would be more correct to say, 
that the learned professions are overstocked because they are 
recruited from every rank in society above that of the artisans ; 
the sons of merchants being ambitious of admission to them, 
and the younger sons of the landed gentry ancL 




232 



DIFFERENCES OF WAGES. 



well as of professional men themselves, finding in them, and in 
the service of government, the only means which the right of 
primogeniture has left them of obtaining a livelihood without 
forfeiting the social position to which they were born. It is 
the fixity of the other ranks in the kingdom, and the institu- 
tions which are designed to maintain that fixity, which indi- 
rectly operate to swell the number of applicants for admission 
to the learned professions and to offices under government. 
" If the wages of artisans," continues Mr. Mill, " remain so 
much higher than those of common laborers, it is because arti- 
sans are a more prudent class, and do not marry so early or so 
inconsiderately.' ' 

In England, and, to a small extent, in some of the States of 
this country, an obstacle to the free circulation of labor is cre- 
ated by the poor laws. A town or parish is bound to support 
those paupers only who were born in it, or who, in various 
ways specified by the laws, have obtained a "settlement" 
within its limits. Sometimes, forty days' undisturbed resi- 
dence were made sufficient for obtaining a settlement ; more 
stringent regulations required that the person should have been 
assessed to parish rates and paid them, or should have served 
an apprenticeship there, or have been hired into service there 
and remained in such service for a full year. Those who have 
not complied with these requisites may be warned off, or sent 
home to the parish where they belong. Through such regula- 
tions, it is evident that there may be a superfluity of labor in 
one place, and considerable deficiency of it in another, and 
that industry may be very unequally compensated in different 
districts. Frequent litigation arises under the law of settle- 
ment, as the facts in each case are often imperfectly known or 
difficult to be proved; and cases of extreme hardship some- 
times happen, as when a family reduced by poverty and sick- 
ness are forcibly removed to a distance from the place which 
they have chosen for their home, or are sent travelling over the 
whole country in search of the parish to which they rightfully 
belong. But as I have already intimated, the evil is not one 
of much moment here in America, where the wages of labor 
are high, and where there is but little pauperism among the 
native born, and that little can be supported at insignificant 
expense. No great pains, therefore, are taken to prevent a 
person from obtaining a settlement wherever he likes. 



DIFFERENCES OF WAGES. 233 

But the great influx of foreign immigrants, many of whom 
are extremely poor, while some were paupers at home, and 
have been sent over to this country by the parish authorities 
only to get rid of the expense of their maintenance, makes this 
subject one of considerable importance for the States on the 
Atlantic coast. The charge of foreign paupers is assumed by 
the individual States, as the matter does not come within the 
province of our restricted national government, and as no one 
town or district, more than another, is fairly chargeable with 
the support of this class of the poor. To require the ship- 
master who brings them over to give bonds that they shall not 
become chargeable as paupers, or to levy a duty on all immi- 
grants, so as to form a fund for the support of the poor among 
them, are measures which, though generally adopted, are of 
doubtful expediency and legality. Payment of the bonds is 
easily evaded when any length of time has intervened, or when 
the foreign poor have wandered into the inland States ; and 
the fund collected in Massachusetts or New York, under a 
doubtful authority, as it belongs to Congress alone to regulate 
foreign commerce, cannot be made available for the expenses 
of pauperism in Connecticut or Pennsylvania. As the evil 
becomes greater with the now constantly increasing flood of 
immigration, some comprehensive measure will probably be 
devised to meet it, which will require the joint action of Con- 
gress and the State legislatures. 

Mr. Senior justly remarks, that "the difficulty with which 
labor is transferred from one occupation to another is the prin- 
cipal evil of a high state of civilization. It exists in proportion 
to the division of labor. In a savage state, almost every man 
is equally fit to exercise, and in fact does exercise, almost every 
employment. But in the progress of improvement, two cir- 
cumstances combine to render narrower and narrower the field 
within which a given individual can be profitably employed. 
In the first place, the operations in which he is engaged be- 
come fewer and fewer ; in a large manufactory, the man who 
is engaged in one of these operations has little experience in 
any of the others. And in the second place, the skill which 
the division of labor gives to each distinct class of artificers 
generally prevents whatever peculiar dexterity an individual 
may have from being of any value in a business to which he 
20* 



234 DIFFERENCES OF WAGES. 

has not been brought up. A workman whose specific labor 
has ceased to be in demand, finds every other long-established 
employment filled by persons whose time has been devoted to 
it from the age at which their organs were still pliable and 
their attention fresh." 

This subject is excellently illustrated by Mr. Laing, with 
reference to the qualifications of emigrants to perform the 
novel tasks imposed upon them by their change of residence. 
" Two hundred years ago," he says, " when the peophng of 
the old American colonies was going on, the great mass of the 
population of the mother country was essentially agricultural ; 
but every working man could turn his hand to various kinds 
of work, as well as to the plough. He was partly a smith, 
carpenter, wheelwright, stone-mason, shoemaker. The useful 
arts were not, as now,. entirely in the hands of artisans bred to 
no other labor but their own trade or art ; very expert, skilful, 
and cheap producers in that, but not used to, or acquainted 
with, any other kind of work. This inferior stage of civiliza- 
tion, in which men were not cooperative to the same extent as 
now, but every man did a little at everything, and made a 
shift with his own unaided workmanship and production, was 
a condition of society very favorable to emigration-enterprise 
and to colonization. It continues still in the United States, 
and is the main reason why their settlers in the backwoods are 
more handy, shift better for themselves, and thrive better, than 
the man from this country, who has been all his life engaged 
in one branch of industry, and in that has had the cooperation 
of many trades preparing his tools and the materials for his 
work. 

" Another advantage for emigration in that state of society 
which we in Great Britain have entirely outgrown, was, that 
the female half of the population contributed almost as much 
as the male half to the subsistence of a family, especially an 

emigrant family In the days of King James, and of 

Charles I. and Charles IL, and down even to the end of the 
last century, the emigrant could reckon upon the household 
work of the females of his family as more or less profitable, 
and at least saving, by the production of all clothing material. 
In genteel famihes at home, all the family linen and cloth for 
common wear, and often some for sale in the country towns. 



DIFFERENCES OF WAGES. 235 

was produced by household work. The progress of society to 
a higher state of material refinement has entirely superseded 
such family production. Cooperative labor in factories sup- 
plies the public with much better and finer goods ; and the 
public taste is so much refined by the continual enjoyment of 
finer articles, that the old mode and quality of production 
would not satisfy it now ; but that former state was more fa- 
vorable to emigration than our present more advanced social 
condition. There seems to be a stage in the progress of na- 
tions at which they can throw off swarms with most success. 
A nation, Uke an individual, may become too refined for colo- 
nizing ; its social state too cooperative ; men too dependent on 
other men for the gratification of acquired tastes and habits, 
which have become part of their nature, and interwoven with 
the daily life even of the poorer classes." * 

The case of household or home manufactures, here alluded 
to by Mr. Laing, is an interesting one, as it shows that, under 
certain circumstances, persons may be willing to work, and 
may find it profitable to work, for much less than the ordinary 
compensation of labor in their neighborhood. An agricultural 
family has considerable leisure time in the course of the year, 
the winter being a period of almost entke suspension of their 
customary tasks. This leisure they may profitably devote to 
any species of manufacture which can be pursued at home, at 
intervals, and without the aid of costly tools ; for however 
poorly such labor may be compensated, its proceeds are all 
clear gain. The time would be entirely lost, if it were not 
thus employed. Thus, spinning and knitting viirj continue to 
be carried on by hand in many an humble family, long after 
the most perfect machinery for performing these processes has 
been invented, and the prices of the articles spun or knit have 
consequently been reduced to a very low rate. The family 
would not be enabled to subsist by devoting themselves en- 
tirely to these employments ; but their subsistence being 
already secured by agriculture or some other adequately com- 
pensated labor, their leisure may be economized by such sup- 
plementary tasks, and a small addition be thus obtained to 
their slender income. The Swiss, a frugal and industrious 

* Laing's Observations on Europe in 1848 and 1849, pp. 69, 70. 



236 



DIFFERENCES OF WAGES. 



people, are noted for having carried these home manufactures 
to a great extent, and for maintaining them against the for- 
midable competition of British fuel, capital, and machinery. 

A similar case is presented in the wages of female labor, 
which are usually much lower than those of males. The rea- 
son is, that comparatively few women are solely dependent 
upon what they can earn for themselves ; most of them have 
a husband, father, or brother by whom they are supported. 
Being fed from other sources, they can afford to perform at a 
very low price the few tasks that are deemed appropriate for 
their sex. So many of them are wilhng to work upon these 
terms, in order to obtain, not a livelihood, but the means of 
copying a new fashion, or of purchasing a coveted article of 
furniture or a bit of finery, that wages in their whole depart- 
ment of industry are permanently depreciated ; and the few 
women who are unfortunate enough to be thrown wholly upon 
the fruits of their own industry for subsistence, are reduced to 
great straits. Thus, sewing is a peculiarly feminine occupa- 
tion, and is therefore more inadequately paid than any other 
species of manual labor. Hood attracted the attention and 
sympathy of all England for the hard fate of the needlewomen 
of London ; and novelists have woven many pathetic fictions 
out of the sorrows of governesses. The menial services of fe- 
males are better paid, in America at least, than any other 
species of woman's industry ; a good cook sometimes earns 
more than an accompUshed teacher, and certainly finds it 
easier to obtain employment. The meanness, or, as most 
women consider it, the degrading character, of the employ- 
ment, must be compensated by high wages. 



PROFITS. 237 



CHAPTER XVI. 

THE CIRCUMSTANCES WHICH DETERMINE THE RATE OF PROFITS. 

Capital being amassed, as we have seen, by frugality or 
abstinence, Profits are the reward of abstinence, just as Wages 
are the remuneration of labor and Rent is the compensation 
for the use of land. Labor, capital, and land are the three in- 
struments of production ; and therefore the exchangeable value 
of everything produced is resolvable into three component 
parts, — Wages, Profits, and Rent. To adopt Adam Smith's 
language, " In everi/ society, the price of every commodity 
finally resolv'es itself into some one or other, or all, of these three 
parts ; and in every improved society, all the three enter, more 
or less, as component parts, into the price of the far greater 
part of commodities." In the origin of society, fertile land 
being abundant or equally distributed, so that there is no mo- 
nopoly. Rent does not exist, and the whole value of the thing 
is resolvable into Profits and Wages. A still earlier state of 
things is conceivable, though very seldom exemplified, where, 
no capital being as yet amassed, labor is the sole producing 
agent, so that the whole value consists of Wages, or, in other 
words, the whole produce of labor belongs to the laborer. 
When children pick berries in a bushy pasture, or men gather 
clams on the sea-shore, provided they use no implements but 
their hands, the whole value of what they collect is their own 
gain, or consists exclusively of Wages ; if they use a few 
tools, such as baskets and spades, a very small portion of that 
value must be accounted Profits. 

But under ordinary circumstances, or in every stage of soci- 
ety above the lowest degree of barbarism, aU three of these 
elements concur to make up the value of every article pro- 
duced. " In the price of corn, for example," says Adam 
Smith, " one part pays the rent of the landlord, another pays 
the wages or maintenance of the laborers employed in produ- 
cing it, and the third pays the profit of the farmer. These three 
parts seem, either immediately or ultimately, to make up the 



238 PROFITS. 

whole price of corn. A fourth part, it may perhaps be thought, 
is necessary for replacing the stock of the farmer, or for com- 
pensating the wear and tear of his laboring cattle and other 
instruments of husbandry. But it must be considered that the 
price of any instrument of husbandry, such as a laboring horse, 
is itself made up of the same three parts, — the Rent of the 
land upon which he is reared, the Labor of tending and rearing 
him, and the Profits of the farmer who advances both the Rent 
of this land and the Wages of this labor. 

" As any particular commodity comes to be more manufac- 
tured, that part of the price which resolves itself into Wages 
and Profits comes to be greater in proportion to that which 
resolves itself into Rent. In the progress of the manufacture, 
not only the number of Profits increase, but every subsequent 
Profit is greater than the foregoing ; because the capital from 
which it is derived must always be greater. The capital which 
employs the weavers, for example, must be greater than that 
which employs the spinners, because it not only replaces that 
capital with its Profits, but pays, besides, the Wages of the 
weavers ; and the Profits must always bear some proportion 
to the capital." 

Still it is true, in the last analysis, as already stated, that the 
creation of all value can be traced to labor alone. Capital it- 
self is created by labor, and may be called consolidated or 
invested labor. It consists of the economized or reserved fruits 
of previous labor, so that Profits are only the compensation of 
former industry, just as Wages are the compensation of pres- 
ent industry. What is usually called Rent, also, is, in great 
part, only the compensation of the labor and capital that have 
previously been expended upon the land, and so closely incor- 
porated with it that the original and the acquired properties of 
the soil can no longer be distinguished from each other. The 
greater part of what is popularly termed Rent, then, is nothing 
but Profit, or, in other words, the Wages of past industry. As 
to Rent properly so called, or the compensation for the original 
and inherent properties of the soil, it is not, strictly speaking, 
the reward of an agent that has concurred in the production, 
but is only a share, appropriated on the monopoly principle, 
of the previously created value. These original properties of 
the soil are the free gift of Nature ; like the air and the light. 



PROFITS. 239 

they cost nothing to anybody. But as they are not inexhaust- 
ible in amount, — at least in localities where they are most 
needed, — they are appropriated by individuals, and through the 
monopoly thus created, a tax is levied upon the producers of 
value. Thus, a portion of the value of every article of wealth 
is appropriated to paying Rent properly so called ; but this 
portion is not the reward of any personal agency that has con- 
cmTed in the production of wealth. 

But when Profit is spoken of as the third component part of 
value, there is an ambiguity in the meaning of the word which 
deserves attention, as it is the source of several of Mr. Ricar- 
do's paradoxes. In the ultimate distribution of the price or 
value, the whole share which falls to the capitalist is called 
Profit by Ricardo ; but this includes the replacement of the 
capital which he originally vested in the undertaking, as well 
as that enlargement of this capital in the process of production 
which alone is usually denominated Profit. What this econo- 
mist calls Wages, also, is only the share or proportion of the 
finished product which is received by the laborer ; as what he 
terms Profit is the share or proportion of the same product 
which accrues to the capitalist. Thus, Rent being a fixed 
sum, to be first deducted from the total value, without any ref- 
erence to the comparative amount of Wages and Profits, 
what remains after this deduction is to be divided between the 
laborer and the capitalist. Hence Mr. Ricardo was led to af- 
firm, that " nothing can affect profits but a rise of wages " ; 
that " whatever raises the wages of labor lowers the profit of 
stock " ; and that, " as the wages of labor fall, the profits of 
stock rise." Summing up the whole doctrine in one theorem, 
he maintains that high wages and high profits are incompat- 
ible, since whatever is added to the one must be taken from 
the other. Having sliced off (say) one third of the apple for 
Rent, he proposes to divide the remainder into two parts, giv- 
ing the name of Wages to the one, and of Profits to the 
other ; and if his nomenclature is correct., the truth of his doc- 
trine is self-evident. When a given quantity is to be divided 
into only two parts, it is manifest that either one of these parts 
can be enlarged only at the expense of the other ; they must 
vary in the inverse ratio of each other. 

But few words are needed to expose this paradox. When 



240 



PROFITS. 



words are taken in their ordinary acceptation, it is certain that 
high wages and high profits often go together, and tend to 
produce each other. The rates of both are considerably higher 
in the United States than in Great Britain; both are much 
higher in California than in New York. "When a capitalist is 
making large profits, he is eager to extent his business, to em- 
ploy more hands, and consequently he offers higher wages. A 
fall in wages is symptomatic of a decline in business, and a 
general depreciation of profits. 

But it should be distinctly understood, that we here mean 
by wages, not the proportion of the finished product that falls 
to the laborer, but the amount, the quantity and quality, of the 
commodities which he can purchase with the results of his 
day's labor. If a jom-neyman carpenter is able to buy one 
fourth of a barrel of flour with his day's wages, while a seam- 
stress can obtain only one tenth of a barrel with hers, then the 
wages of the former are two and a half times greater than 
those of the latter ; and this would be true, though the car- 
penter received only 80 per cent of what his day's work sold 
for, while the seamstress was paid 90 per cent of the value of 
hers. In Hke manner, " profits are not measured by the pro- 
portion which they bear to the rate of wages, but by the pro- 
portion which they bear to the capital by the agency of which 
they have been produced." K a farmer, to borrow Mr. Mc- 
Culloch's illustration, employs a capital amounting to 1,000 
bushels of grain, paying 700 of it for wages, and 300 for seed 
and other expenses, then, if the return at the end of the season 
be 1,200 bushels, his profit is 200 bushels, and his rate of profit 
is 20 per cent. Mr. Ricardo would say, that the total product, 
1,200 bushels, is divided into profits and wages in the propor- 
tion of 5 to 7, inasmuch as the laborers received seven twelfths 
of it, and the capitalist only five twelfths ; -^ a doctrine which 
is correct as he understands it, but which is calculated only to 
mislead, if words are taken in their ordinary meaning. 

Several things are usually confounded under the name of 
Profit, which must be clearly distinguished from each other be- 
fore we can gain a clear view of the cncumstances on which 
the rate of Profit, at any given time and place, depends. The 
general principle is, that Profits tend to an equality in aU em- 
ployments and in all localities. I do not say that they are 



PROFITS. 241 

equal, or that they must become equal ; but an equalizing pro- 
cess is constantly going on ; for if the gains in one department 
of enterprise are notoriously above the average, — if it is even 
suspected by a multitude of sharp-sighted observers, who are 
on the lookout for such opportunities, that they exceed the 
average, — more capital is at once attracted into the employ- 
ment, till, by the competition of the capitalists with each other, 
the rate of Profit is reduced to the common standard in other 
enterprises. 

But though Profits tend to an equality in different employ- 
ments, it is equally certain that there is a great seeming in- 
equality in them, most of which can be readily explained by a 
reference to the several really distinct elements which are 
usually confounded under the general name of Profits. Thus, 
among those who superintend the application of capital, — en- 
trepreneurs the French call them, managers is the nearest Eng- 
lish appellation, for they are not always the owners of the 
capital which they manage, — there is every degree of skill, 
enterprise, and intelligence ; the gains vary, of course, in pro- 
portion as these faculties are exercised. The prudent and 
sagacious merchant makes a fortune out of the very business 
from which a dozen of his competitors may retire as bank- 
rupts. Only those who are successful continue in the busi- 
ness for a long time ; and the average of the gains of such 
persons is found greatly to exceed the ordinary rate of Profits. 
Obviously, however, their gains are not all to be reckoned as 
Profits, strictly so called ; a large portion of them are to be con- 
sidered rather as the Wages of labor, or as the salary paid to 
an unusually skilful person for managing the concern. This 
portion — the ivages of management — being deducted from 
their total gains, it is only the remainder which can properly 
be regarded as Profit, and its rate compared with the rate of 
Profits in other employments, with which it will be found to 
agree. These wages for skilful management often rise to a 
very high point ; some of the manufacturing corporations in 
Massachusetts have found it for their advantage to pay to 
their general agent or manager a higher salary than the gov- 
ernment of the United States paid to its Minister to Great 
Britain, or than it now pays to the Chief Justice of our Su- 
preme Court. If this person, instead of acting as an agent for 
21 



242 PROFITS. 

others, should enter into business on his own account, and 
trade with his own capital, we ought to subtract $ 10,000 
a year from his annual gains, before those gains are con- 
sidered as any indication of the general rate of profit in his 
business. 

Again, the risk incurred varies much in different employ- 
ments. If, in a particular business, tliree ventures out of four 
fail altogether, or result in a loss, the gains of the fourth ven- 
ture, on an average, must be high enough to compensate for 
all these losses, and to afford at least the ordinary rate of profit 
for the capital required during all the time which is consumed 
by all four ventures. The gains of the slave-trade between the 
coast of Africa and Brazil are so great, that if three ships out 
of four are captured and condemned, with all their slaves on 
board, the profit on the return cargo of the fourth ship is large 
enough to make the business a lucrative one to the merchant. 
The true rate of profit, then, must be calculated only after a 
large deduction is made from the total gains as an insurance 
against total loss. 

But here another element comes in to modify our calcula- 
tions, — an element already once mentioned as "the lottery 
principle in human nature." So much does the prospect of 
splendid gains outweigh, in the estimation of sanguine and 
adventurous persons, the chances of loss, that an undue pro- 
portion of capital is attracted into some very uncertain employ- 
ments, and the rate of profit in them is consequently reduced to 
a very low point, — often, indeed, to nothing or less than noth- 
ing. There is no doubt that the average gains in a trade in 
which large fortunes may be made, — in our own flour-trade, 
for instance, or in California mining, — " are lower than those 
in which gains are slow, though comparatively sure, and in 
which nothing is to be ultimately hoped for beyond a compe- 
tency. In such points as this, much depends on the characters 
of nations, according as they partake more or less of the adven- 
turous, or, as it is called when the intention is to blame it, the 
gambling spirit. This spirit is much stronger in the United 
States than in Great Britain ; and in Great Britain than in 
any country on the Continent of Europe. In some Continen- 
tal countries, the tendency is so much the reverse, that safe 
and quiet employments probably yield a less average profit to 



PROFITS. 243 

the capital engaged in them than those which, at the price of 
greater hazards, offer greater gains." * 

The moral character of individuals — or, at any rate, the 
estimation in which they are held in the community — is 
affected by the comparative prevalency of the gambling spirit. 
Here, the standard phrase for a " failure," or an act of bank- 
ruptcy, is " misfortune in business " ; — that is, fortune only is 
blamed, the individual is pitied, and the sympathy of his com- 
panions and former rivals helps him to try again. The reason 
why the act is so leniently viewed is, that it is so frequent ; no 
one can conscientiously blame his neighbor for what is so likely 
to happen to himself, — for what, perchance, has happened to 
himself more than once. I have heard it estimated on good 
authority, that in Boston, where the estimate of commercial 
honor is certainly as high as in any city of the United States, 
at least two thirds of the young men who commence business 
on their own account fail in the course of the first five years. 
No one reproaches them for this fact ; for not a few even of the 
wealthy men of the city remember their own two or three un- 
successful trials before they finally acquired a fortune. Still, 
in estimating the profits of trade as compared with those of 
agriculture, the professions, and the mechanic arts, the number 
and amount of such failures must be taken into view, or our 
calculations will be very wide of the truth. The prevalence 
of this speculating or gambling spirit is undoubtedly one of 
the reasons why the rate of interest in this country continues 
so high ; lenders are affected with it as well as borrowers, and 
wiU incur great hazards when tempted by usmious rates. 

In England, bankruptcy is a more serious matter. The 
bankrupt not only loses credit ; he also, to a great extent, loses 
caste. He is a dishonored man, whose sense of personal deg- 
radation is not infrequently so keen as to drive him to suicide. 
Sidney Smith wittily remarks, that an Englishman's idea of 
Paradise is a place where people always pay their debts. 
Hence the opprobrium incm-red by our repudiating States was 
so much greater in England than in this country, and was ex- 
pressed with so much bitterness as absolutely to goad and 
sting the defaulters into a sense of the heinousness of their act, 

* J. S. Mill's Political Economy, Vol. I. p. 489. 



244 PROFITS. 

and an attempt to retrieve their reputation. There was a time 
when a Mississippian or a Pennsylvanian in London ran great 
risk of being treated as roughly as General Haynau was in 
Barclay's brewery. And yet, serious and wholly indefensible 
as was the breach of faith on the part of the defaulting States, 
the complaints of the English bond-holders were exaggerated 
and unreasonable. They knowingly incurred a greater risk, 
for the sake of obtaining a higher interest ; they dehberately 
preferred investment at considerable hazard in American funds 
at six per cent, to a perfectly safe investment in English gov- 
ernment funds at three per cent, and therefore had compara- 
tively little ground for complaint when a certain portion of 
their hazardous investment turned out unfavorably. Most of 
the American States redeemed all their obligations without 
delay ; some others were unable for a time to pay the interest, 
but ultimately redeemed their credit by paying off the arrears ; 
two or three others were hopelessly bankrupt. Considered as 
one transaction, and on purely commercial principles, the total 
investment of English funds in American stocks was a suc- 
cessful enterprise ; the bond-holders obtained more than they 
would have received from an equivalent investment in the 
English national debt. 

In France, the lot of the bankrupt is still more severe ; he 
not only loses his social position, but the law prevents him 
from engaging in any other business on his own account till 
he has redeemed his outstanding obligations. 

I have dwelt at length upon these circumstances affecting 
the rate of profits, because they illustrate the principle already 
stated, that the theory of Political Economy is but an exposi- 
tion of human nature as it appears when engaged in the pur- 
suit of wealth. The rate of profits varies according to the 
opinions, and habits of mind and action, of those who apply 
capital to productive uses. The money-getting propensity is 
but one tendency or phasis of human nature, and it is con- 
stantly modified and controlled by the other passions and hab- 
its of men, with which it is blended, and among which it is by 
no means the strongest. 

Another illustration of this general principle is found in a 
circumstance just alluded to, — the extraordinary fluctuations 
of the grain and flour market in this country, — fluctuations 



PROFITS. 245 

which are so great and frequent as to put all calculation at de- 
fiance, and to make the gains of the dealers nearly as uncertain 
as the chance of drawing a prize in a lottery. As the results 
of successful speculation in this branch are very brilliant, and 
as bankruptcy is no disgrace, the business is probably more 
overdone — that is, the average rate of profit is lower — than 
in any other enterprise whatsoever. Flour may be five dollars 
a barrel in New York at the beginning of the season, may rise 
to twelve dollars in the course of the summer, and fall even 
below its starting-point when the next crop comes in. The 
effect of such changes as these on the business of a dealer who 
has a stock of a quarter of a million of barrels at a time may 
be easily seen. He may literally gain or lose one or two mil- 
lions of dollars in one season. How are such fluctuations pos- 
sible ? At the first sight, it would appear that the price of 
bread-stuffs would be the most stable of aU prices. The quan- 
tity needed, the number of mouths to be satisfied with food, 
varies by a fixed and well-known law of increase from year to 
year. The average crop over a country so extensive as this 
varies but little ; a bad harvest in one State is compensated 
by an unusually good one in another. And should there be 
any marked deficiency or excess, foreign commerce stands 
ready, as usual, to equalize the market by distributing the ag- 
gregate product uniformly where it is most needed. 

But the vast quantity of the article which is produced and 
consumed every year, and the fact that it is also an article of 
prime necessity for all classes of people, introduce a new ele- 
ment into the calculation. The hopes and fears of men are 
strongly excited in relation to a product on which not merely 
comfort, but life, depends, and the use of which is absolutely 
universal. Its price rises and falls, not merely in proportion 
to the deficiency or excess of the crop, but to the alarm and 
the spirit of speculation which are excited by that deficiency 
or excess. A failure of one sixth of the crop, instead of raising 
the value in the market only in that proportion, will often 
double the price ; a surplus of not more than an eighth of the 
average annual harvest may sink the price below the actual 
cost of production. A mere rumor of an apprehended partial 
failure of the crop in England has power to raise the price of 
grain and flour from five to twenty per cent on the banks of 
21* 



246 PROFITS. 

the Ohio. Here, obviously, a correct statement of a law of 
Political Economy is a general fact in the science of human 
nature, a law of which we must take cognizance in the philos- 
ophy of the human mind. The sensitiveness and excitability 
of the American character give peculiar prominence to the 
operation of such laws within our nearest range of observa- 
tion. 

What Mr. Mill calls " the perpetual overflow of capital into 
colonies or foreign countries, to seek higher profits than can be 
obtained at home," is certainly a powerful agent in equalizing 
the rates of profit in different lands. But that it is not so effi- 
cient for this purpose as we might be tempted at first thought 
to imagine, appears from the notorious fact, that the rate of 
interest for money is twice as high here as in Great Britain. 
This difference of rate would be greater than it is, if British 
capital were not occasionally sent hither in large amounts. 
But why is not the migration sufficient to equalize the rates 
at once, since every man would prefer to receive six, rather 
than three, per cent for his money ? Several answers may be 
given to this question. In the first place, the capitalist is not 
often willing to emigrate along with his capital. He is bound 
to his native soil by many ties of feeling and interest, which 
he cannot easily sever, and which, being at any rate in easy 
circumstances, he is under no strong temptation to break. He 
must be separated from his property, then, and the distance of 
the place of investment, other things being equal, enhances the 
risk ; no one likes to trust his capital in operations tiiat he can- 
not oversee, to individuals of whom he knows but fittle, or to 
places where it will be controlled by laws and institutions dif- 
fering from those with which he is familiar. War may possi- 
bly break out between the two countries, or their peaceful 
relations be so far disturbed, that the profits cannot be remitted 
with regularity, or perhaps the principal itself may be lost. 
Lastly, the sentiment from which no man is entirely free, — a 
sentiment which may be dignified by the name of patriotism, 
or branded as national prejudice, — prevents the credit of for- 
eigners from being fairly estimated. Public affairs may be 
more widely and accurately known than private enterprises ; 
foreigners, therefore, usually prefer government stocks to other 
means of investment. Next to these, chartered companies, 



PROFITS. 247 

whose transactions are large and of a public character, enjoy 
a preference. 

But on the whole, capital is every day assuming more of a 
cosmopolitan character, and the time when the rates of interest 
will become nearly equal in all commercial countries cannot 
be far distant. " The inequality in the rate of profit through- 
out the civilized world," says Mr. Senior, " is much less than 
the inequality of wages. And as the general progress of im- 
provement tends more and more to equalize the advantages 
possessed by diiferent countries in government and habits, and 
even in salubrity of climate, the existing inequalities of profits 
are likely to diminish." 

Deducting compensation for risk and the wages of manage- 
ment, Mr. J. S. Mill considers that the rate of profits strictly 
so called " is measured by the current rate of interest on the 
best security; such security as precludes any appreciable 
chance of losing the principal." If he means that the current 
rate of profits in the narrowest sense of that term is identical 
with the current rate of interest, the proposition may be 
doubted. He who superintends the employment of his own 
capital expects to gain much more than the rate of interest ; 
and the whole of this excess can hardly be attributed to the 
two elements that have been mentioned. The hazard, in the 
estimation of the capitalist, cannot be great, or he would not 
encounter it, as he has a choice among different modes of em- 
ploying capital ; or if there be an extra risk, it is balanced by 
the chance of an extra profit. And though the wages of man- 
agement, as we have seen, may sometimes be very high, it 
should be remembered, that, if great skill, enterprise, and sa- 
gacity are needed for the successful use of capital, a command 
of capital is equally necessary to give full scope to these high 
qualities of character and intellect ; and the joint effect is prop- 
erly divisible between the two factors. Still, as the rate of 
profit unquestionably varies proportionally with the current 
rate of interest, though exceeding it by an indefinable amount, 
we may take the latter as a measure and type of the former, 
and investigate the causes which affect equally the rates of 
both. 

In English systems of Political Economy, the theory of the 
circumstances which determine the average rate of profit, as 



248 



PROFITS. 



well as the doctrine respecting the average rate of Wages, is a 
deduction from the theories of Malthus and Ricardo respecting 
population and rent. Indeed, ever since Ricardo's time, it has 
been the ambition of English writers upon the subject to erect 
Political Economy into the rank of a deductive science; — to 
begin with a few postulates or universally recognized facts ; to 
trace these to their consequences, under the law of competi- 
tion, by a course of abstract reasoning ; and to make the re- 
sults thus obtained square with observed facts by the method 
of exhaustions, ehminating, evading, or explaining away aU 
the phenomena that do not coincide with the theory. This 
method has elevated some startling paradoxes into the dignity 
of first principles of the science ; he who does not possess the 
key to them, or is incapable of explaining them in what is 
claimed to be the true scientific method, that is, by reference 
to the very few and simple facts which alone are admitted to 
be the proper data of the science, is held to be unworthy of 
mingling in the discussion. He is ruled out of court, on the 
ground of ignorance. Hence an offensive tone of assumption 
and dogmatism has crept into the writings of the expounders 
of the system, and the breach between scientific economists 
and practical business men is unnecessarily and injm-iously 
widened. 

Some of these paradoxes we have already reviewed, and 
traced them to their origin in the arbitrary assumptions, or arbi- 
trarily limited definitions, which have been made the basis of 
the science. Thus, it is assumed that the growth of the popu- 
lation everywhere tends to outrun the increase of the means of 
subsistence ; and the inference is, that the natural or necessary 
standard of wages is the smallest sum that will furnish the 
laborer with what his class in society regard as the necessaries 
of life. It is assumed that the most fertile soils are always the 
first to be cultivated, and that the population, as it increases, 
remains on the same spot ; and the inferences are, that addi- 
tional food is always obtained at a disadvantage, that addi- 
tional capital can never be applied to the land but with 
constantly diminishing returns ; and hence, that the increase 
of the population anywhere, and under all circumstances, is a 
great evil ; — a paradox of the most startling kind, inasmuch 
as the common sense of mankind has everywhere taken it for 



PROFITS. 249 

granted, that the rapid growth of the population is one of the 
most unfailing indications of great prosperity. Profits are 
arbitrarily defined to be, what remains to the capitalist from 
a division of the whole value created between him and the 
laborer, rent having been previously deducted ; and the infer- 
ence is, that profits and wages vary in inverse proportion, or 
that high wages and high profits are incompatible ; whereas it 
is a matter of the commonest observation, that they vary in 
direct proportion, high wages being incompatible with low 
profits. It is assumed that individuals are always the best 
judges of their own interests, that nations are composed only 
of individuals, and that individual and national interests are 
identical; and it is inferred, that, as it would be unwise to 
place restrictions upon trade between individuals, so it would 
be impolitic to put any fetters upon international commerce ; 
but that a little kingdom like Denmark should be exposed, in 
every branch of her industry, to the overpowering competition 
of the immense capital and other resources of a great nation 
like England. Yet it is certain, as Mr. Rea remarks, that 
individual and national interests are not always identical, be- 
cause individuals often grow rich by the acquisition of Avealth 
previously existing, but nations by the creation of wealth that 
did not before exist ; and we have already seen, (pp. 36 - 38,) 
that private persons may be impoverished by the conversion 
of artificial into natural wealth, though nations are always 
benefited by this process. For the case of Denmark, I bor- 
row the language of Mr. Laing, an English Political Econo- 
mist who has partly shaken off" the trammels of this system, 
and prefers to reason from facts rather than assumptions. 

" Denmark has no metals or minerals, no fire power, no 
water power, no products or capabilities for becoming a man- 
ufacturing country supplying foreign consumers. She has no 
harbors on the North Sea. Her navigation is naturally con- 
fined to the Baltic. Her commerce is naturally confined to 
the home consumpt of the necessaries and luxuries of civilized 
fife, which the export of her corn and other agricultural prod- 
ucts enables her to import and consume. She stands alone in 
her corner of the world, exchanging her loaf of bread, which 
she can spare, for articles she cannot provide for herself, but 
still providing for herself everything she can by her own indus- 



250 PROFITS. 

try. This is no unhappy condition either for an individual or 
a nation. This home industry of hers is protected by heavy 
import duties on all foreign articles which could compete with 
her own manufactures, and these are avowedly imposed, not 
for revenue, for which a lower duty would be more productive, 
but for protection. The object of this policy of the Danish 
government is simply to secm-e a living and occupation to that 
portion of the population which is not engaged in husbandry, 
and which, without protective duties on all that interferes with 
their branches of industry, would become a burden on the rest 
of the community, owing to the natural want of products or 
capabilities in the country of giving employment in manufac- 
tures, commerce, or in any branch of industry but agriculture, 
and the few arts and trades connected with it. This protec- 
tive system in any country, and under any circumstances, 
would have been scoffed at a few years ago by our English 
Political Economists, as contrary to all sound principle ; but it 
wears a less foolish aspect if we examine it closely, and with 
reference to the physical circumstances which impose it upon 
some countries, such as Denmark, and to the social or conven- 
tional circumstances which dispose the classes the most distant 
and most opposed to each other in general, to clamor for it in 
our own. The Danish government appears to have adopted, 
and always acted upon, that policy which the physical circum- 
stances of the country — namely, the natural want of all prod- 
ucts or means by which a surplus population could be em- 
ployed in manufactures or commerce — have imposed upon it ; 
and to have protected, as a species of property, the skill and 
labor of her working operative classes by heavy import duties 
on all articles that interfered with their industry ; and to have 
protected them, also, against themselves, that is, against an 
accumulation of more labor and skill in any trade than the 
locahty required and could subsist ; and to have protected the 
landed interest and their laborers by a free export of their 
products." 

But I return from this digression to a consideration of the 
circumstances that determine the average rate of profits. The 
phenomenon to be explained by any theory that may be 
broached upon this subject, is the gi'adual but sure declension 
of the rate of profit in all countries, as their population and 



PROFITS. 251 

wealth are augmented. The growth of national opulence re- 
sembles that of the human body. It is most rapid in infancy, 
the body usually doubling in weight during the first year of its 
existence, a rate of increase which it never afterwards equals. 
In early childhood, the growth is still quick, though not so 
rapid as at first ; and it steadily declines, as the child ap- 
proaches maturity, till at last it reaches its stationary point in 
full manhood, when, though all the corporeal powers and func- 
tions are in full vigor and activity, the body no longer increases 
either in stature or weight, except as a consequence of disease 
or other extraordinary circumstances. Adam Smith long ago 
remarked, that in a new colony, which is " more understocked 
in proportion to its territory, and more underpeopled in propor- 
tion to the extent of its stock, than the greater part of other 
countries," profits are very large, and the rate of interest is 
consequently high. " As the colony increases, the profits of 
stock gradually diminish " ; and " in a country fuUy stocked in 
proportion to all the business it had to transact, the competi- 
tion would everywhere be as great, and consequently the ordi- 
nary profit as low, as possible." 

Thus, in California, soon after its cession to the United 
States and the discovery of its gold-washings, profits rose with 
unexampled rapidity, and the current rate of interest was from 
thirty-six to forty-eight per cent a year. These extravagant 
rates, however, soon began to decline, and they are now not 
more' than twice as high as in New York. Similar changes 
have taken place in Australia, since the discovery of gold in its 
southern region. I have already observed, that the rate of in- 
terest in England, which was over ten per cent in the early 
part of the sixteenth century, slowly but steadily declined, till 
it reached its present ordinary rate of three per cent. I have 
also cited the case of Holland, which seems to have attained 
the stationary state over a century and a half ago. The rate 
of interest there, on government security, had then fallen to 
two per cent, the lowest point to be generally estabfished 
through a whole country that is known in the history of com- 
merce. For fifty years before this stage was attained, — that 
is, during the latter half of the seventeenth century, — the 
Dutch "were the most active commercial and manufactm'ing 
power in the world. Their colonies were scattered over both 



252 PROFITS. 

hemispheres, and their sails whitened every sea. They had 
almost exclusive control of the carrying-trade, and the Naviga- 
tion Laws of the Enghsh were enacted for the avowed purpose 
of wresting a portion of this traffic from them. They alone, 
for a long period, contended with England for the mastery of 
the seas ; and dm-ing a portion of this time victory inclined to 
their flag. Then were executed those gigantic works of in- 
ternal improvement which rescued Holland permanently from 
the ocean, converted her marshes into gardens, and made her 
canals the highways of the commerce of Europe. Having 
touched the zenith of their fortunes, the Dutch did not begin 
to decline, but simply remained stationary, while other nations, 
England especially, have in their turn risen to be masters of 
the commercial world. 

And the same cause which checked the progress of Holland, 
which opposes a necessary limit to the growth of national opu- 
lence, threatens even now to stay the course of English pros- 
perity. There are the same symptoms of a relaxation of the 
energies of the system, as the organs become distended with 
over-abundant wealth. The rate of interest is with difficulty 
maintained at a point above that where it rested in Holland a 
hundred and fifty years ago ; the Bank of England is now 
often driven to discount private paper at only two and a half 
per cent. But for the overflow of English capital into colonies 
and foreign countries, and for a commercial crisis, which often 
sweeps away a great amovmt of capital to the manifest advan- 
tage of what is left, just as a gush of blood from the nose 
sometimes relieves a patient who is in danger of apoplexy, the 
tide would have turned in Great Britain some time since, leav- 
ing the people not exhausted, but satiated. During the last 
thirty years, the English have thrown away capital enough 
upon South American and Mexican mines, Spanish and Greek 
funds, and railroads, to serve as a good basis for the opulence 
of another country of equal population. Through the stubborn 
perseverance of the national character, the productive energies 
of the people seem to have outlived the motives which called 
them into being, and for a long time sustained them in action. 

This constant downward tendency of the rate of profit is a 
phenomenon to be explained, for it is the opposite of the issue 
that we were prepared to expect. As capital accumulates, 



PROFITS. 253 

experience is enlarged and skill perfected ; it would seem, then, 
that labor, being more abundantly supplied with all the means 
for its most effectual exercise, would be most successfully ap- 
plied, and would be followed by the largest and most profitable 
results. True, the prices of commodities fall as the cost of 
their production is diminished. But there seems to be no rea- 
son why they should fall more rapidly than the cost of the arti- 
cles decline ; and therefore we cannot see, at the first glance, 
why the rate of profit should be diminished, — why it should 
be less than when men work at great disadvantage, under all 
the privations and difficulties incident to the attempt to found 
a new colony. 

Adam Smith ascribes the fall of profits in some measure to 
the competition of capitalists. " When the stocks of many 
rich merchants," he says, " are turned into the same trade, 
their mutual competition naturally tends to lower its profits ; 
and when there is a like increase of stock in aU the different 
trades carried on in the same society, the same competition 
must produce the same effect in them all." But the objection 
is properly made, that competition can tend only to equafize 
the profits in different employments and different places. It 
can make the profits of cotton-spinning equal to those in the 
iron manufacture, and can reduce the gains of merchants in 
New York to a level with those in Boston ; but it suppfies no 
reason why the average rate of profit in aU employments, and 
at aU places, should be depressed. To produce this effect, there 
must be something to come into competition with capital it- 
self, — some other agent, which shall render industry equally 
effective ; and we have no such agent, and cannot even con- 
ceive of one. 

Mr. Ricardo and his followers attempt to solve the problem 
by reasoning in their peculiar manner from the few facts which 
are all that they admit as data in the science. With them, as 
I have said, the doctrine of profits is a deduction from the 
Malthusian theories of population and rent. The value of 
every commodity being divisible into the three elements of 
rent, wages, and profits, whatever cause tends to augment the 
two former, or even to increase but one of them without an 
equivalent reduction of the other, must certainly lessen the 
third element, which is all that remains for profit. Such a 
22 



254 



PROFITS. 



cause is found in the necessity, created by an ever-increasing 
population, of constantly having recourse to inferior soils, and 
thereby of perpetually augmenting the rent of the lands which 
were previously under cultivation. But if rent is increased, 
there remains a smaller portion to be divided between wages 
and profits. Still further ; there is a limit to the depression of 
wages, but there is none to the fall of profits. The natural 
and necessary rate of wages, according to these theories, as 
has been already explained, is the smallest sum that will sup- 
ply the laborer and his family with what are believed to be the 
necessaries of life. As the cost of food is increased, therefore, 
by the necessity of cultivating inferior land, the expense of 
supplying the laborer with food is also increased, and his 
wages must rise. The portion remaining for profit is thus 
diminished, as it were, at both ends ; as the population in- 
creases in number, from the value of every commodity a con- 
stantly increasing share must be cut off for rent, and another 
regularly augmented portion must be deducted for wages. 
Obviously but a small portion, and that perpetually becoming 
less, remains for profit. " In one brief formula," says Mr. 
De Quincey, " it might be said of profits, that they are the leav- 
ings of wag-es ; so much will the profit be upon any act of pro- 
duction, whether agricultural or manufacturing, as the wages 
upon that act permit to be left behind." 

The following diagi-am or ocular construction, also borrowed 
with some modification from Mr. De Quincey, may not only 
make this clearer to the reader, but may illustrate the peculiar 
character of Ricardo's reasoning, — the strict, logical deduc- 
tion from a few arbitrarily assumed premises, little or no re- 
gard being paid to the modifying circumstances in a case 
which is obviously a very complicated one. 

No. I. 100 bushels to 
the acre. 

No. II. 90 bushels to 
the acre. 

No. III. 80 bushels to 
the acre. 

No. IV. 70 bushels to 
the acre. 

Here No. I., the upper parallelogram, represents land of the 



w 


P : 


r'" ': 


R" • 


R' 


w 


VT'\ P 


r'" 


R" 




w 


w':w"; P 


R'" 






w 


w'_-w":w'": P 







PROFITS. 255 

first quality, yielding 100 bushels to the acre. No. II. repre- 
sents the second class of soils, yielding but 90 bushels to the 
acre, and required for tillage as soon as the growing popula- 
tion has made the produce of No. I. insufficient to satisfy the 
demand for food. No. III. represents the third class of soils, 
yielding but 80 bushels to the acre, brought under cultivation 
under the same pressure continually increasing. No. IV. rep- 
resents the poorest quality of the soil that is cultivated, yield- 
ing 70 bushels to the acre, or only enough to pay the ordinary 
wages of the labor, and the necessary rate of profit on the cap- 
ital required for its cultivation, and therefore yielding no sur- 
plus for rent. We have only to add, that W expresses the 
function of wages, P of profit, w', w", and w'" the several in- 
crements of wages, and r', r", and r'" the several increments 
of rent, as they emerge successively under the series of agri- 
cultural expansions rendered necessary by the constant growth 
of the population. 

As soon as No. II. is called into use by the increased de- 
mand for food, the increased price of that food will pay ordi- 
nary profits and wages for the cultivation of land yielding only 
90 bushels an acre; and therefore r', representing 10 bushels 
an acre, will be left for the rent of No. I., though it yielded no 
rent before No. II. was cultivated. But this enhanced price 
of food renders necessary also an advance of wages, because 
the wages formerly paid were barely sufficient to purchase the 
necessary food for the laborer's family at the old price. Hence 
this increment of wages, represented by w', must also be cut 
off from P, which is at the same time lessened by the deduc- 
tion of r'. When a further increase of the population brings 
into use No. III., yielding only 80 bushels, both r' and r", rep- 
resenting 20 bushels, must be deducted from No. I., and r", or 
10 bushels, from No. IL, for rent. So, also, w" must be de- 
ducted for a further rise of wages. In like manner, when No. 
IV. is broken up for tillage, r', r", and r'" will be paid for rent 
on the three classes of soils of a higher quafity, and w', w", 
and w'" will be the successive additions to the original rate, W, 
of wages. So long as No. IV. is the poorest land in cultiva- 
tion, its whole produce will be absorbed in the payment of 
profits and wages, and nothing will be left for rent. 

The preceding diagram is constructed only to show the sue- 

"^M^ X o isr 



256 



PROFITS. 



cessive deductions that are made from profits to pay wages 
and rent. It does not represent the whole state of the case, 
after tillage has been brought down to No. IV, ; for as there 
can be but one rate of wages at the same time, w', w", and 
w'", or the successive increments of wages, must be deducted 
from the three higher classes of soils, as well as from No. IV. 
The following construction, then, shows how little remains for 
profits after No. IV. has come into use. 





a 


c 




i 




b 


No. I. 


w 


w' 


w":w'" 


p 


n'" 


R" : R' 


No. II. 


w 


w' 


w":w'" 


p 


R'" ■ 


r" 




No. III. 


w 


w' 


w":w'" 


p 


R"' 






No. IV. 


w 


w' 


w":w'" 


p 







Here P, representing profits, extended from a to b when 
only No. I. was in cultivation, but reaches only from c to d 
after tillage has descended to No. IV. 

This diminution of the rate of profits must go on indefi- 
nitely, so long as the increase of the population obliges us to 
have recourse to soils of constantly diminishing fertility. Rent 
at the same time will be proportionally augmented ; the land- 
holder will receive not only a larger portion of the total prod- 
uct, but the price per bushel of the whole product will be aug- 
mented. Wages, however, will be only nominally increased ; 
the successive increments, w', w", and w'", cannot be more than 
enough to pay the enhanced price of food which caused them. 
In fact, they wiU not suffice to pay the new price, but the 
laborer wiU submit to live on a smaller quantity of food, or on 
food of a coarser quafity ; for while food is becoming dearer, 
the constant tendency of the population to increase is adding 
to the competition in the labor-market, so that wages cannot 
rise in full proportion to the higher cost of food. 

Thus far, it would seem that the new rates of wages and 
profits would be established only in agriculture, where alone a 
necessity for them appears to have been created. But a little 
reflection will show that they must extend equally to all em- 
ployments of industry and capital. The enhanced price of 
food must raise wages throughout the country ; and competi- 



PROFITS. 257 

tion must equalize profits. If the returns for the employment 
of capital were smaller in farming than in commerce and man- 
ufactures, capital would be diverted from agriculture till the 
balance was restored. Furthermore, the increased cost of the 
raw material, which is always obtained more or less directly 
from agriculture, will immediately lessen the profits of the 
manufacturer ; for instance, " even upon shoes," as De Quin- 
cey remarks, " there will be a small increase of labor, because 
the raw material will grow a little dearer as hides grow dearer ; 
and hides will grow dearer as cattle grow dearer, by descend- 
ing upon worse pasture-lands." 

There is but one possible check upon this descent of agri- 
culture to inferior soils, and the consequent declension of prof- 
its, augmentation of the price of food, and increase of rent. 
This is the progress of agricultural improvements, by means 
of which more food is obtained from the same quantity of land, 
or the same amount of food is procured by a smaller expendi- 
ture of labor and capital. In this way, the wants of an in- 
creasing population may be provided for without the necessity 
of bringing more land into tillage, or of applying capital Avith 
constantly diminishing returns. But this check cannot have 
any permanent influence ; it may postpone, but cannot finally 
avert, the consequences of a steady growth of the population. 
Its influence, indeed, is self-limited ; for, as McCulloch re- 
marks, " the rise of profits consequent to every invention, by 
occasioning a greater demand for labor, gives a fresh stimulus 
to population ; and thus, by increasing the demand for food, 
again inevitably forces the cultivation of poorer soils, and 
raises prices." And again, " from the operation of fixed and 
permanent causes, the increasing sterility of the soil is sure, in 
the long run, to overmatch the improvements already made in 
machinery and agriculture, prices experiencing a corresponding 
rise, and profits a corresponding fall." 

Tt only remains to notice a corollary from this theory, in re- 
spect to the different manner in which this declension of the 
rate of profits affects the comparative value of commodities 
produced in great part by Fixed Capital, and of those pro- 
duced in great part by Circulating Capital. These two kinds 
of capital differ chiefly in point of durability; Circulating 
Capital is employed for the most part in the payment of wages, 
22* 



258 



PROFITS. 



and is very soon replaced by the fruits of the laborers' indus- 
try. Fixed Capital consists of tools and machines, varying in 
their degrees of durability, though all are consumed and re- 
placed much more slowly than the various elements of Circu- 
lating Capital. According as Fixed Capital has less and less 
of durability, so far it approximates the separate nature of Cir- 
culating Capital. Some commodities are almost exclusively 
produced by the expenditure of capital, chiefly of Fixed Cap- 
ital. Gunpowder, for instance, to avoid the hazard of human 
life, is manufactured by machinery moved by water-power in 
some retired place, the works being so contrived that the pro- 
cess is continued with very little superintendence, the work- 
men visiting the place only occasionally, to bring additional 
raw material, to remove the finished product, and to make a 
few adjustments of the machinery. Boots and shoes, on the 
other hand, are made almost entirely by the immediate labor 
of man ; machines are not used in their manufacture, and the 
workman needs but few and simple tools. 

Now, a fall of profits, as Mr. Mill remarks, " lowers in natu- 
ral value the things into which profits enter in a greater pro- 
portion than the average, and raises those into which they 
enter in a less proportion than the average. All commodities 
in the production of which machinery bears a large part, espe- 
cially if the machinery is very durable, are lowered in their 
relative value when profits fall ; or, what is equivalent, other 
things are raised in value relatively to them." Recurring to 
the diagram, we see that wages rise while profits fall, though 
not in the same proportion, the fall of profits, owing to the 
deduction of rent, being more rapid than the rise of wages. 
For a double reason, then, as population advances, and infe- 
rior soils are brought into cultivation, gunpowder, and other 
articles the value of which consists mostly of profits, fall in 
price when compared with boots and shoes, and other com- 
modities the value of which consists chiefly in wages. The 
elements of the former are declining, at the same time that the 
elements of the latter are rising, in comparative value. The 
result is otherwise briefly stated by Mr. Mill in this formula : — 
" Every fall of profits lowers, in some degree, the cost value of 
things made with much or durable machinery, and raises that 
of things made by hand ; and every rise of profits does the re- 
verse." 



PROFITS. 259 

This is a brief outline of Ricardo's celebrated theory of value 
in relation to rent, wages, and profits. It is a masterpiece of 
abstract reasoning, imposing from its scientific pretensions, the 
boldness of its assumptions, the paradoxical character of many 
of its results, and the ingenuity which has been manifested in 
explaining these paradoxes and reconciling them with the facts 
of observation. In point of logic, it is unexceptionable ; once 
admit its premises, and there is no stopping short of its conclu- 
sions. We may accept in great part the criticism of it by an 
eminent French economist, J. B. Say. " It is," he remarks, 
"perhaps a well-founded objection to Mr. Ricardo, that he 
sometimes reasons upon abstract principles to which he gives 
too great a generalization. When once fixed in an hypothesis 
which cannot be assailed, from its being founded on unques- 
tionable observations, he pushes his reasonings to their remot- 
est consequences, without comparing their results with those 
of actual experience. In this respect, he resembles a writer 
upon the mathematical theory of mechanics, who, from un- 
doubted proofs drawn from the nature of the lever, would 
demonstrate the impossibility of the vaults daily executed by 
dancers on the stage. And how does this happen ? The rea- 
soning is unexceptionable ; but a vital force, often unperceived, 
and always inappreciable, makes the facts differ very far from 
the calculations. From that moment, nothing in the author's 
work is represented as it really occurs in nature. It is not suf- 
ficient to begin with facts ; other facts must be collected, 
steadily examined, and the consequences drawn from them 
constantly compared with the effects observed. The science 
of Political Economy, to be of practical utUity, should not 
attempt to teach what must necessarily take place, even if de- 
duced by legitimate reasoning, and from undoubted premises ; 
it ought to show in what manner that which in reality does 
take place is the consequence of another fact equally certain. 
It should ascertain the chain which binds them together, and 
always establish from observation the existence of the two 
finks at their point of connection." 

It is unnecessary at present to examine this reasoning in de- 
tail, in order either to point out flaws in the argument, or to 
show that its results do not harmonize with those of observa- 
tion and experience. The whole theory rests upon a few 



260 PROFITS. 

premises, which have already been examined and shown to be 
mere assumptions, paradoxical in appearance, and having no 
foundation in fact. It is not true, that the increase of the pop- 
ulation tends to outrun the supply of food, or that it compels 
us to have recourse to inferior soUs, or that it necessarily in- 
creases the competition of laborers for employment. Food 
does not become dearer, but is cheapened, by the growth of 
the population ; the districts which are most recently brought 
into cultivation are not the least fertile, but are often more pro- 
ductive than those which have been peopled and tilled for cen- 
turies ; and the capital which is applied to them generally 
yields a larger return than that which is employed in the old 
settlements. It is not even necessary, as the people increase 
in numbers, to send to a greater distance for food ; but emigra- 
tion distributes the people, and commerce distributes the food, 
where both are most needed, the combined result being that 
each generation is more fully supplied with the means of sub- 
sistence than its predecessor. The only inequality to be feared 
is that which is sometimes caused by human institutions, in 
the distribution of property ; and the only famine which is pos- 
sible in modern times, and among civilized nations, is produced 
by poverty, and not by a deficient supply of food. 

The premises of Ricardo's theory being thus proved to be 
baseless, the entire superstructure falls. The whole is a mere 
exercise of logical ingenuity, a long series of deductions being 
obtained from a few definitions and hypotheses, which have 
no foundation in experience, and no applicability to the cir- 
cumstances of the present time. The original phenomenon to 
be explained — the declension of the rate of profit as society 
advances in numbers and wealth — presents little difficulty, 
when we regard the limited extent of the field for the employ- 
ment of capital. But this subject demands for fuU considera- 
tion a separate chapter. 



THE FIELD FOR THE USE OF CAPITAL. 261 



CHAPTER XVII. 

THE RATE OF PROFIT AS AFFECTED BY THE LIMITED EXTENT 
OF THE FIELD FOR THE EMPLOYMENT OF CAPITAL : THE 
THEORY OF GLUTS. 

Mr. Wakefield was the first among English Economists 
to notice the seemingly obvious fact, that, in every country, the 
field for the employment of capital is of limited extent. The 
first introduction of capital into such a field is attended with 
very large returns ; but as the amount of it increases, the rate 
of profit falls off; and when the hmit is attained, or so nearly 
attained that profits have fallen to a minimum, accumulation 
ceases, there being no longer any sufficient motive for the exer- 
cise of frugality. "With an evident desire to reconcile this fact 
to the theories of Malthus and Ricardo, with which it appears 
to conffict, Mr. Mill states the principle thus : — that " on a 
limited extent of land, only a limited quantity of capital can 
find employment at a profit." Thus enunciated, it seems to 
be only a corollary fi-om Ricardo's doctrine of rent, which ex- 
pressly affirms that successive appfications of capital to the 
same quantity of land can be made only with successively 
diminishing returns. It wiU appear, however, that the extent 
of territory is not the only, or even the chief, limiting circum- 
stance ; but that the proper restriction is to be found in the 
magnitude of the wants of the people, as determined by their 
numbers, by the degree of civilization under which they live, 
and by the greater or less inequality of the distribution of prop- 
erty among them. 

But it should be observed, that we are here speaking of a 
limit to the profitable employment of capital. Some distin- 
guished Economists, among whom are Sismondi and Malthus, 
have maintained that there may be a general over-production 
of wealth, " a supply of commodities in the aggregate exceed- 
ing the demand, and a consequent depressed condition of all 
classes of production." We are all familiar with the fact, that 
there is often, in the market, a glut of a particular commodity, 



262 THE FIELD FOR THE USE OP CAPITAL. 

or of several commodities at once. Prices are adjusted, and 
the current of productive means and productive energy is 
turned from one article to another, through the indications 
afforded by such instances of glut or over-supply on the one 
hand, and of dearth or scarcity on the other. But the doctrine 
of these Economists is, that there may be a general glut, or 
that the disposition and the ability to produce may outrun the 
ability of the nation to consume. The disposition to consume, 
of course, is coextensive with the disposition to produce. But 
the ability to purchase, or, in other words, the active and effi- 
cient demand, it is supposed, may so far fall below the supply, 
that there will be a general depression of prices and general 
distress. 

On the other hand, it has been contended, with great force, 
that a general glut is impossible ; for every article brought to 
market is a source both of supply and demand, — the owner 
of it always wishing to exchange it for something else of equal 
value, so that his desire to purchase contributes to lighten the 
market to precisely the same extent to which he burdens it by 
his desire to sell. No man appears exclusively in the character 
of a seller; he is a buyer also, and he buys to the same extent 
to which he sells. If he brings a bale of cloth to market, for 
instance, it is because he wishes to exchange it, in the first 
place, for money. But this money he does not intend to keep 
in reserve, in order to increase indefinitely his store of it. He 
knows very well, that, if the money remains idle in his chest, 
it will yield neither interest nor profits. He will aim, there- 
fore, to expend it as soon as possible, — either to buy articles 
of comfort or luxujy for his own unproductive consumption ; 
or to purchase raw material, tools, machinery, seed-corn, or the 
like, with a view to further production ; or lastly, he may lend 
it to another, who, by investing it productively, — that is, by 
maldng purchases with it, — will be enabled to pay him inter- 
est for its use. In either way, the money is expended ; pur- 
chases are made to the fuU extent of the original sale. K the 
seller chooses to lend the money to a bank, instead of trusting 
it to an individual, the result is the same. The bank immedi- 
ately lends it over again to some person who wishes to enlarge 
his stock in trade by buying more commodities. 

This reasoning is quite conclusive against the possibility of 



THE FIELD FOR THE USE OF CAPITAL. 263 

a general glut ; but it must be applied with two important 
limitations. First, it goes upon the supposition, that the laws 
and other institutions of the country admit the freest possible 
interchange of aU articles of wealth. If there be a monopoly 
of any one article, if only a few persons are privileged or en- 
abled to produce and sell it, — and especially if this article be 
one of prime or universal necessity, — then there may be a 
glut, or over-production, of all other articles with reference to 
this one. To illustrate this point, I will take the most general 
case. All articles that are offered for sale or exchange may be 
roughly divided into two classes, according as they are articles 
of manufacture or products of agriculture. The latter are 
chiefly articles of food, and the demand and supply of food, as 
we have seen, are regulated by causes pecuUar to itself, wholly 
uTcspective of the presence or absence — the high or low 
prices — of other commodities. The demand for agricultural 
products depends on the number of appetites to be satisfied, 
and can only be enlarged by an increase of the population, or 
diminished by the population becoming smaller ; the supply of 
these products is determined by the extent of territory capable 
of cultivation, and by improvements in the modes of hus- 
bandry. Neither of these sources of supply can be increased 
at will, or on demand ; the land, in such a country as Great 
Britain, is aU owned and occupied, and the number of acres is 
hmited ; improvements in agriculture are made by the progress 
of discovery and invention, and not merely because they are 
needed to feed the people. 

Now manufactures must be exchanged for food, and conse- 
quently they may be produced in too great abundance ; there 
is no limit to their increase, but there is a limit to the supply 
of the only article for which they can be bartered. And we 
cannot here say, as the English Economists are fond of saying 
in the case of a particular glut : " Transfer your capital and 
industry from the article of which there is a surplus to that of 
which there is a deficiency." In England, industry cannot be 
transferred from manufactures to agriculture ; the land is all 
owned and held at a monopoly price, and the landlords refuse 
to employ more labor upon it, even if a greater amount of food 
should be produced by the introduction of more hands. They 
find, or think they find, that a greater net product remains to 



264 THE FIELD FOR THE USE OF CAPITAL. 

themselves when few hands are employed, than when there are 
many. Hence they endeavor to get rid of a portion of the 
agricultural laborers, instead of increasing their number. The 
policy of most English landlords is to depopulate their estates, 
to make the peasantry give place to flocks and herds, as in the 
North of Scotland, or to compel them, by unroofing and tear- 
ing down their dwellings, as in L-eland, to emigrate to foreign 
lands. Thus they imitate the system which has been practised 
for centuries in the Roman Campagna, which reduced the 
fields of Italy in the age of Pliny to a desert, and subsequently 
surrendered them to the Northern barbarians because there 
were not men enough left to defend them. The dispossessed 
tenantiy are obliged to emigrate, or are driven into manufac- 
turing industry ; and thus the glut of manufactures is increased 
by the very causes which diminish the supply of food. True, 
food may be imported, as we have seen, even to an extent 
which is practically unlimited. But the very necessity for such 
importation, if it is found to exist in a country the agricultural 
resources of which are not yet developed to the utmost possi- 
ble extent, proves that, in that country at least, there is abeady 
a glut of manufactures, and one which, in its effect on the rate 
of profits, would be very seriously felt, if there were not in 
other countries a glut of food. What actually exists in one 
nation, is possible in all nations ; if there be an actual glut of 
manufactures in Great Britain, such a glut is possible for the 
whole civilized portion of mankind. And this glut of manu- 
factured products in England is not a consequence of the 
stinted bounty of nature in reference to agricultural products. 
The amount of food produced there, from its own soil, is yet 
far from having attained its maximum; it might become as 
populous as Belgium, — that is, fifty per cent more populous 
than at present, — and yet not only feed all its inhabitants, but 
" produce commonly," as Belgium does, " more than double 
the quantity of corn required for the consumption of its inhab- 
itants." * 

In most civilized countries, at least two thirds of the work- 
ing population are engaged in agricultural pursuits, and but 
one thu'd in manufactures and commerce ; and this proportion 

* McCuUoch's Geographical Dictionan/. 



THE FIELD FOR THE USE OF CAPITAL. 265 

existed in England itself down as late as the reign of the Stu- 
arts. But in 1821, only one third of the English population 
were engaged in tilling the soil ; and twenty years later, or in 
1841, there were only about one fifth thus employed, — a de- 
population of the rural districts to the rapidity of which there 
is no parallel in history.* There is no absolute deficiency 
either of land or food ; for both can be had in abundance, as 
has been shown, in other countries. But as there are obstacles 
which impede the emigration of capital, so there are those 
which obstruct in a still greater degree the emigration of the 
indigent portion of the people. Poverty — the very cause 
which renders it desirable for them to emigrate — also renders 
emigration difficult, and often impossible. 

The second limitation of the doctrine that a universal glut 
is impossible, is founded on the division, that I have already 
made (pp. 40, 41), of all the commodities which constitute 
wealth into two classes. First., there are the articles which are 
designed for immediate consumption, and which directly sat- 
isfy the wants of man; such as food and clothing that are 
ready to be eaten and worn, the houses that shelter us, and the 
ornaments and luxuries that gratify our tastes. And, secondly, 
there are the tools, implements, and raw materials, by means 
of which, or out of which, the former articles are made, but 
which, in their present shape, are not fitted for our immediate 
gratification and support. These two classes may be desig- 
nated respectively as, 1. Finished products, ?mdi, 2. Producing 
agents. The division between them does not exactly corre- 
spond with that between capital and the other portion of 

* The following table, taken from the official reports, shows the proportionate per 
cent of the British population who were engaged respectively in agricultural, com- 
mercial, and manufacturing, and all other pursuits, at four decennial periods. 







Trade and 






Agriculture. 


Manufactures. 


All others. 


1811 


.35 


.44 


.21 


1821 


.33 


.46 


.21 


1831 


.28 


.42 


.30 


1841 


.22 


46 


.32 



The census of 1851, though it presents a more minute classification of the occu- 
pations of the people, unfortunately does not enable us to divide the population into 
three classes, so as to continue the foregoing table. But according to the best esti- 
mate that can be framed from it, the agricultural portion of the British population 
in 1851 was a little less than 20 per cent of the whole. 

23 



^00 






xraxrioisr 



266 THE FIELD FOR THE USE OF CAPITAL. 

wealth which is not capital. All producing' agents are capi- 
tal, it is true ; but all finished j^roducts are not excluded from 
the definition of capital. A merchant's capital, for instance, 
often consists exclusively of commodities that are completely 
manufactured and ready for use ; a retailer's stock is generally 
of this character. 

It is evident that all wealth of the second class, all produ- 
cing agents, possess only a kind of secondary and derivative 
value ; they are prized, not for their own sake, but for what 
may be made out of them, or produced by their aid. And it 
is equally evident, that if the demand for commodities of the 
first class, finished products, is not coextensive, if it does not 
keep pace, with the demand for the second class of objects of 
wealth, or 2)roducing agents, then there must be an excess of 
supply, or a glut, of the former, and a consequent fall of prices 
and diminution of profits. No one buys a plough or a loom 
for its own sake ; for in itself, it gratifies no feeling and satisfies 
no want. The one is valued only because it helps us to raise 
corn, and the other, because it enables us to manufacture cloth. 
The only effect of the purchase of either, then, is, not to relieve 
the market already glutted with corn and cloth, but to furnish 
prospectively a greater supply of both, and thus to increase the 
glut. 

We may admit, then, the force of the common argument, 
so far as it goes, against the possibility of a glut ; and we may 
still deny that it covers the whole grovmd, or that it demon- 
strates the impossibility of any such excess of supply of one 
class of articles, as cannot be remedied by diverting the som-ces 
of production from those commodities which are in excess to 
those which are deficient. We admit, that a capitalist who 
wishes to seU also wishes to buy ; for to sell is to exchange, 
and the seller's disposition to part with one product is exactly 
measm-ed by his disposition to obtain another of precisely 
equivalent value. We admit, also, that he does not wish to 
sell or exchange for money alone, so as to create a scarcity of 
that one article ; for though he receives money in one half of 
his transaction, or as a seller, he pays it in the other half, as a 
purchaser. So far as money is concerned, then, his operation 
leaves the market in the same state in which he found it, — 
not glutted by the number of sellers of goods, nor " tightened," 
as the phrase is, by the want of money. 



THE FIELD FOR THE USE OF CAPITAL. 267 

But though he buys as much as he sells, is it true that he 
always relieves the market by the former operation just as fast, 
and to the same extent, that he bm-dens it by the latter, so that 
the balance of transactions remains as it would have been, if 
he had not entered the market at all ? We can easily see that 
he does not, in any one case of two articles corresponding to 
each other as finished product and producing; agent. Suppose 
the market, for instance, to be already amply furnished with 
grain. One who brings to it an additional thousand bushels 
of grain to sell, occasions a glut of this article, and certainly 
does nothing towards relieving this glut, by expending all the 
money which he received for grain upon the purchase of 
ploughs and other implements for clearing and breaking up 
more land, and thus producing a larger harvest the next year. 
Or if cloth enough is already offered for sale, the sellers of it 
will certainly occasion a glut of this article, if they exchange 
the whole stock of it for power-looms, and thus double or 
treble the quantity of cloth which will be offered for sale the 
next month. The same reasoning is applicable to any other 
two commodities that are related to each other as finished 
product and producing agent. It is equally evident that it is 
applicable to all such cases, taken together ; or, in other words, 
a general glut of finished products is possible, and such a glut 
cannot be relieved by diverting capital to other employments. 
There is no other employment for it, as every use of capital is, 
directly or indirectly, to increase the amount and value of fin- 
ished products. Then a superabundance of capital, in refer- 
ence to the field for its employment, is possible ; and the 
inevitable result of such a surplus is a diminution of the rate 
of profit. 

Thus far, I have only proved that a glut of finished products 
is possible. The probability of its actual occurrence, I have 
already said, will depend upon the magnitude of the wants of 
the people, as determined, 1. by their numbers, 2. by the de- 
gree of civilization which they have obtained, and, 3. by the 
greater or less inequality of the distribution of property among 
them. 

First, it is obvious enough, that the consumption of finished 
products in any country, other things being equal, will depend 
upon the number of its inhabitants. The demand for food is 



268 THE FIELD FOR THE USE OF CAPITAL. 

necessarily in proportion to the number of appetites to be sat- 
isfied ; and the other articles which are absolute necessaries of 
life must follow the same measure. Even the demand for 
luxuries will be determined in the same way, if the tastes and 
the abilities of the people remain the same. 

Secondly, it is equally plain that the extent of the demand 
for finished products will be affected by the degree of civiliza- 
tion which the people have attained, and that, other things 
being equal, it will advance with the progress of refinement 
among them. The wants of the natives of the South Pacific 
Isles, when they were first visited by Europeans, were almost 
entirely supplied by the bread-fruit and cocoa-nut trees, and 
by yams and bananas. The bread-fruit tree alone supplied 
them with food, clothing, and the material for huts. When 
they learned from foreigners the existence of other comforts 
and luxuries, their wants rapidly multiplied ; the knowledge of 
the uses of iron alone opened a wide field for the industry that 
it created. Intercourse with China has created a demand all 
over the world for tea ; the discovery of America added to- 
bacco, the potato, and many other articles, to the list of our 
wants. It would be difficult to estimate the number of trades 
that have been created, and the number of persons who have 
found employment, through the diffusion of a taste for the fine 
arts. 

Thirdly, as an effectual demand is created only by the coex- 
istence of the disposition and the ability to purchase, its extent 
will depend upon the equality of the distribution of property. 
The two circumstances already mentioned affect only the mag- 
nitude and prevalence of human desires ; and in the present 
state of civilization in Europe and America, it may be said 
that these desires are unbounded ; the gratification of some 
desires appears to have no effect but that of exciting others. 
But the ability to satisfy these desires exists in very different 
degrees. If this ability were equally diffused, no such thing as 
over-production would be possible ; the consumption of an in- 
dividual, or a family, possessing a very moderate amount of 
wealth, certainly exceeds the productive power of such a per- 
son or family. On the other hand, the consumption of much 
the larger part of the population of Europe is Hmited to mere 
necessaries, or to what the custom of the country regards as 



THE FIELD FOR THE USE OF CAPITAL. 269 

necessaries. If the demands of all were thus restricted, there 
would be a great surplus of productive power ; in the present 
state of invention, and with the present accumulation of capi- 
tal, mankind might be idle probably more than half of the 
time. It is the luxury of the rich which oiTers the only vent 
for all finished products that exceed the definition of necessa- 
ries. This fact does not furnish any apology for such luxury ; 
for a more equitable division of the goods of this world would 
cause the surplus of productive power — all that is not needed 
for the creation of necessaries — to be expended in providing a 
multitude of what may be called comforts and decencies for 
the bulk of the nation. But when property is very unequally 
distributed, the luxury of a few must make up for the forced 
abstinence of many, or there will be a constantly increasing 
surplus of capital, which will manifest itself either by the 
forced emigration of such capital, or by such a diminution of 
the rate of profit as will take away all temptation to make ad- 
ditional savings. 

This doctrine seems plain enough, though it is vehemently 
opposed by all English Economists of the Adam Smith and 
Ricardo school, who insist upon the paradox, that, not con- 
sumption, but production, creates a vent or market for prod- 
ucts, and that the only means of dissipating an apparent glut 
is to stimulate production. Their chief reason for insisting 
upon this theory is the admitted fact, that no one ever finds 
any difficulty in bartering a finished product for some other fin- 
ished product, provided he will allow the purchaser to fix the 
terms of the exchange. Certainly, exchange is always ^05M- 
hle ; the only question is, whether it is always profitable. And 
this question seems to be answered by another admitted fact, 
that as a country becomes wealthy, and capital accumulates, 
producers find that the only exchanges which they are able to 
make become less and less profitable, or, in other words, that 
profits decline, and are only prevented from ceasing altogether 
by a stop being put to the process of accumulation. 

All wUl allow, that the productive power of every civilized 
nation already exceeds what is requisite for providing all the 
people with a stock of mere necessaries. Any excess beyond 
this point — whether such excess be created by the invention 
of new machinery, or by the accumulation of fresh capital — 
23* 



270 THE FIELD FOR THE USE OF CAPITAL. 

must be directed towards the production of comforts and luxu- 
ries. It is a mere evasion, as we have seen, to say that it may 
be directed to the purchase or construction of more productive 
agents. Such additional agents will only increase the amount, 
perhaps aheady too great, of comforts and luxuries in the form 
of finished products. But w^hen they have reached this form 
of finished products, they must either be consumed, or they 
will lie idle and rot ; no other use can be made of them. They 
are no longer agents for anything but the gratification of taste 
and desire. Consumption, or rotting unused, is their only pos- 
sible destination. Now, I have admitted that, if property — or 
purchasing' power ^ which is the same thing — is pretty equally 
distributed among the people, the aggregate desire will take 
oiF and consume the aggregate product of comforts and luxu- 
ries, without causing any great declension of profits. On an 
average, each family would be inclined to consume all the 
products which, under a perfectly equal distribution of prop- 
erty, it Would be able to produce ; and this would be enough 
to prevent profits from falling at all ; the only effect of the in- 
vention of new machinery and improved processes of manu- 
facture would be to increase the stock of luxuries which each 
family might thus consume, or to give them more leisure time, 
which is in itself an additional luxury. Some would consume 
more, and some less, than this ; but the prodigality of the for- 
mer would be balanced by the frugality of the latter, and the 
only effect would be the inequality of property that would thus 
be gradually induced. 

But suppose property to be very unequally distributed, only 
one hundred families now having all the wealth, and the whole 
remaining population being limited to the bare necessaries of 
life. As we suppose the productive power of the community 
to be unaltered by this change in the distribution of property, 
there will be the same amount of comforts and luxuries to be 
consumed as before, and it is evident that they must be con- 
sumed solely by the one hundred wealthy families. Now, sup- 
pose one of these families to be disposed to make savings, and 
thus to increase its productive power : it may be proved that 
both the act of saving and the employment of the savings 
will tend to create a glut and to lower profits. The act of 
saving will leave the luxuries formerly distributed among one 



THE FIELD FOR THE USE OF CAPITAL. 271 

hundred, to be consumed by only ninety-nine families; and 
this diminution of the demand will depress prices and profits. 
And the employment of the savings as capital, though it will 
give wages to an additional number of poor families sufficient 
to procure necessaries for them, and wiU furnish these necessa- 
ries through their labor, will leave also an additional margin of 
profit, which must be devoted, as before, to the creation of lux- 
uries ; and thus a larger supply of luxuries will be forced upon 
the market in which the ninety-nine wealthy families are the 
only purchasers. A second depreciation of prices must be the 
consequence. 

The intention of Providence seems to be, that the time and 
labor economized, through the use of machinery and improved 
modes of production, in the production of necessaries, should 
be devoted to the creation of luxuries for very general use, — for 
most of the working families, as well as for a few persons of 
wealth ; or, supposing that there are already luxuries enough 
for all, that the time, the immunity from the necessity of labor, 
so obtained, should be distributed among the people with some 
approach to equality, nearly all having a portion of leisure 
each week, to devote either to recreation or mental improve- 
ment. "When the distribution, not of wealth indeed, but of 
the opportunities for obtaining wealth, is equalized, or made 
to approach equality, there will be no possibility of creating 
too many labor-saving machines, producing too much, redu- 
cing the rates of profit too low, being oppressed with a surplus 
of population, or glutting the market of the world. Those 
whose ambition is limited and whose wants are few, will not 
enter into the strife as rival producers, but will devote the sur- 
plus of time and wealth which they have earned to the gratifi- 
cation of their tastes and to a quiet enjoyment of life. 

I have already noticed the fact, that Ireland, where the ine- 
quality in the distribution of property is extreme, is, in propor- 
tion to her population and wealth, one of the poorest markets 
for manufactured produce in the world ; while in the United 
States, as there is a near approach to equality in everything, 
there is the largest demand for such produce. From their in- 
ability to purchase the cheaper products of the English manu- 
factories, the peasantry of Connaught, of some parts of Mun- 
ster, the county of Donegal, and the western counties of 



272 THE FIELD FOR THE USE OF CAPITAL. 

Leinster, "usually make their own clothing, consisting of 
linen, knitted stockings, a coarse but very serviceable flannel 
for women's clothes, and a good frieze for men. The fleece 
of his own sheep, spun and woven in his own house, at sea- 
sons which would otherwise have been unemployed, enabled 
the cottier and peasant farmer to provide comfortable clotliing 
for his family, which it was hardly possible for him to obtain 
in any other way." * In the United States, on the other hand, 
notwithstanding our home manufactures are already very con- 
siderable, the importation of cotton and woollen goods alone, 
in 1853 and 1854, after deducting the reexportation, exceeded 
in value an annual average of 58 millions of dollars, or nearly 
three dollars a head for the total white population. These 
large imports consist for the most part of commodities which 
may be accounted as comforts and luxuries ; the cheaper arti- 
cles, which come under the head of necessaries, are now almost 
exclusively of home production. 

In the business of production, capital — which may be 
called embodied labor, because it consists of the reserved fruits 
of previous industry — must bear a certain proportion to free 
or immediate labor, which is the direct application of human 
strength and skill. Embodied and free labor have each a task 
to perform ; neither can be effectually applied without the aid 
of a due portion of the other. The industry of man is of little 
avail, if it be not assisted by tools, implements, and machines, 
the accumulated results of his previous toil or earnings. Even 
the savage cannot hunt without his weapons, nor fish without 
appropriate implements ; and in order to rise in the scale of 
civilization, he must have industry and foresight enough to get 
together an accumulated stock of necessaries, so that he may 
be able to execute prolonged tasks, and to wait till they are 
completed before he can enjoy their fruits. On the other hand, 
at the opposite extreme of the social scale, when the arts are 
carried to perfection, and machinery exists in its most costly 
and complicated forms, wherewith to abridge human labor, 
there is still a necessity for some free labor to superintend and 
aid its operation. There may be an excess, as well as a defi- 



* The Condition and Prospects of Ireland, and the Evils arising from the Present Dis- 
tribution of Landed Property, by Jonathan Pim, (Dublin, 1848,) p. 111. 



THE FIELD FOR THE USE OF CAPITAL. 273 

ciency, of the implements and machines with which any com- 
munity performs its work. Between these extremes, the field 
of employment for capital, and the consequent demand for it, 
vary to every conceivable degree ; and according as the supply 
of such capital falls short of, or exceeds, the demand, the prof 
its are large or small.* This can be best illustrated by a glance 
at the successive stages of progress of an infant settlement 
formed by civilized men in a country hitherto unoccupied, or 
inhabited only by savages. 

In the infancy of such a settlement, the demand for capital 
is urgent, for the capacities and wants of the settlers far exceed 
their means. The sources of its prosperity as yet are latent, 
and need to be developed. Clearings are to be made in the 
forests, buildings are to be erected, roads are to be opened, 
tools to be provided, and nearly the whole of the complex ma- 
chinery through which an organized society applies its ener- 
gies is to be created out of the raw materials afforded by the 
land, the sea, and the forest. Luxuries as yet do not exist ; 
there is hardly any opportunity for unproductive consumption, 
beyond that of the mere necessaries of life. The people are 
frugal by compulsion ; the fruits of nearly all their toil, then, 
become capital, or are converted into means for the future 
more advantageous application of industry. The profits of 
what capital there is are also, of necessity, very great ; one 
tool must be applied to many purposes, and is therefore con- 
stantly in use. The axe for a time must do its own work, and 
that of the hammer, the saw, and the plane. The possession 
of this one instrument must, then, be a source of great gain to 
its owner ; he can buy the unaided services of his fellows, the 
only payment they have to offer, for a long time, by the loan 



* Dr. Chalmers states this reasoning very clearly in the form of an argumentum ad 
hominem for the Malthusians. " As surely as there might be too many ploughmen," 
he says, " so there might be too many ploughs. If, in virtue of the excessive num- 
ber of ploughmen, all cannot find employment without forcing an entrance upon 
soils that would return inadequate wages for the labor, so, in virtue of the excessive 
number of ploughs, all cannot find employment without a like return of inadequate 

profit for the capital What is true of the living, is ti'ue of the inanimate 

instrument ; both might be unduly multiplied. As there might be too many men, 
so might thei-e be too many machines, — too many power-looms, as well as too 
many weavers at hand-looms, — too many cotton-mills, as well as too many cotton- 
spinners." — Chalmers's Political Economy, Vol. I. pp. 93, 94. 



274 THE FIELD FOR THE USE OF CAPITAL. 

of it. And in a similar way, every other item which constitutes 
capital in such a community will be productive of large gains. 
After the hardships and privations of the first season are sur- 
mounted, each laborer probably finds himself provided with 
tools, so that the profits on this branch of capital are lessened, 
and, as an opening has been made in the forest, the operations 
of agriculture can begin. There is now a great demand for 
seed-corn, for the natural fertility of the land will return a 
hundred fold, if the settler has only what is requisite for plant- 
ing. He can safely promise to return three bushels of grain in 
the autumn, for one bushel lent to him in the spring ; in other 
words, he can offer the capitalist a profit of two hundred per 
cent for seed. But after the first harvest is successfully gath- 
ered in, so bountiful is the product of the virgin soil, that very 
probably grain cannot be sold at all in the infant settlement, 
the supply altogether exceeding the colonists' own wants, and 
the means of transportation and export not being yet provided ; 
that is, no profit can be made on food till the means are ob- 
tained for sending this food to market. Capital is now re- 
quired to construct roads and furnish shipping; and as the 
commodity is to be carried from a place where it has little or 
no value, to one where it will command a ready sale and a high 
price, the gains of the merchant engaged in this transportation 
will necessarily be immense. For the first few seasons after 
American farmers had established themselves in the Oregon 
Territory, it is an historical fact that they fed their horses with 
the finest wheat, no market being within their reach for the 
sale of this product. California was then suddenly peopled, 
almost in a single season, after the gold-deposits and aurifer- 
ous sands were found there ; and the gold-seekers being too 
eager in their proper pursuit to find time for planting grain for 
themselves, the agricultural products of Oregon suddenly rose 
to a high price. The farmers on the banks of the Willamette 
found that they could obtain California gold more cheaply by 
raising maize and wheat on their own farms, than by going to 
the country to dig it for themselves. The discovery of gold in 
the neighboring Territory, instead of tending to the depopula- 
tion of Oregon, as was at first apprehended, was the great 
source of its prosperity, as it furnished a market, and indirectly 
supplied the country with capital. 



THE FIELD FOR THE USE OF CAPITAL. 275 

After a country is once sufficiently stocked, as it would 
seem, with capital, the progress of invention may suddenly 
create a great additional demand for it, by calling for the con- 
struction of new machines and improved implements, the use 
of which soon supersedes the old ones. Thus the invention of 
railways, and the application of steam to the purposes of land 
conveyance, have occasioned, both in England and America, 
during the last twenty years, an immense demand for the in- 
vestment of capital, some of the old forms in which it was 
embodied being rendered useless or unproductive. Turnpikes 
cease to be productive property, and canals are less profitable 
than before. For a time, floating or circulating capital is in 
great request, as it is needed for conversion into this form of 
fixed capital ; and accordingly, the rate of interest rises. But 
when the improvement is completed, this demand ceases, the 
returns from the new processes are very great, floating capital 
accumulates more rapidly than ever, and the rate of interest 
falls again. The railway improvement in England and in the 
eastern portion of the United States may now be said to be 
completed ; only the great VaUey of the Mississippi, and the 
lines of communication with the Pacific coast, still call for 
additional investment on roads to be traversed by the agency 
of steam.* 

But I need not trace further these successive steps in the 
progress of opulence and the accumulation of capital. It is 
evident that the rapidity of its increase depends on the rate of 
profit, which is necessarily high in a new country, where the 
people are frugal and industrious. The rate gradually di- 
minishes, both as the primary and most imperative wants of 
the community are satisfied, and as artificial tastes and an ap- 

* According to Mr. Porter, (Progress of the Nation, p. 330,) up to the end of 1849 
there had been constructed in Great Britain and Ireland 5,996 miles of railway, rep- 
resenting a capital of £ 197,500,000. Over 14,000 miles of railway have been com- 
pleted in the United States ; and if those be added which are in process of construc- 
tion, the sum will be 17,146. Taking the average cost of construction and equip- 
ment at $ 25,000 per mile, which is a very low estimate, the capital vested in these 
American roads will be $428,750,000. The capital of the British railways, reck- 
oned in our currency, being about $975,000,000, we have a grand total of 
$1,403,750,000, as the sum which the English and American people have con- 
verted into this one form of fixed capital during the last thirty years. What effect 
would have been produced on the rate of profit, if this immense sum had remained 
in the form of circulating capital, seeking investment ? 



276 



THE FIELD FOR THE USE OF CAPITAL. 



petite for luxury and unproductive consumption are diffused 
among the colonists. Yet floating capital is soon acquired in 
sufficient quantities for the ordinary purposes of industi-y and 
traffic. In such countries as England and Holland, however, 
immense sums gradually take the form of fixed capital, being 
vested in maldng land-improvements of the largest and most 
expensive character; in constructing docks, harbors, and ca- 
nals, erecting dikes, and furnishing manufactories with costly 
machinery. Vast as the field is which such works open for 
the investment of capital, it needs but a glance at the present 
condition of England and Holland to satisfy us, that this field 
is all occupied, and the work of fixed capital is done. What 
farther savings from income are made, must go into the market 
as floating capital, seeking investment, seeking borrowers who 
will take it offering undoubted security, and a very moderate 
rate of interest. There is great competition of the lenders 
with each other in the English and Dutch markets, — a com- 
petition which is most strikingly shown when the govern- 
ment appears as a borrower, and puts up a large loan at 
what is virtually an auction, to be sold in shares to the highest 
bidder. 

A diminished rate of profit tends to throw the great branches 
of manufacture and commerce exclusively into the hands of 
large capitalists, and thus to increase that inequality in the 
distribution of wealth which was one of the original causes of 
a fall of profits. Hence it is that, in such countries as Holland 
and England, where a low rate of interest has prevailed for a 
long period, there is as great an inequahty of fortune among 
manufacturers and merchants, as among land-owners. " It is 
in the nature of trade and manufacture," says Mi'. Laing, 
" that great capital drives small capital out of the field ; it can 
afford to work for smaller returns. There is a natm-al tendency 
in trade to monopoly, by the accumulation of great wealth in 
a few hands. It is not impossible, that, in every branch of 
trade and manufacture in Great Britain, the great capitalist 
will, in time, entirely occupy the field, and put down small 
capitalists in the same line of business ; that a moneyed aris- 
tocracy, similar to that in Genoa, will gradually be formed, the 
middle class of small capitalists in trade and manufacture be- 
come gradually extinguished, and a structure of society grad- 



THE FIELD FOR THE USE OF CAPITAL. 277 

ually arise in which lords and laborers will be the only classes 
or gradations in the commercial and manufactm-ing, as in the 
landed, system. An approximation, a tendency towards this 
state, is going on in England. In many branches of industry, 

— for instance, in glass-making, iron-founding, soap-making, 
cotton-spinning, — the great capitalists engaged in them have, 
by the natural effect of working with great capital, driven small 
capitals out of the field, and formed a kind of exclusive family 
property of some of these branches of manufacture. Govern- 
ment, by excessive taxation and excise regulation, — both of 
which have ultimately the effect, as in the glass and soap man- 
ufacture and the distillery business, of giving a monopoly to 
the great capitalist who can afford the delay and advance of 
money these impediments require, — has been hitherto aiding 
rather than counteracting this tendency of great capital to 
swallow all the employments in which small capital can act. 
It is not an imaginary, nor perhaps a very distant evil, that our 
middle classes with their small capitals may sink into nothing, 

— may become tradesmen or small dealers, supplying a few 
great manufacturing and commercial classes with the arti- 
cles of their household consumpt, and rearing supernumerary 
candidates for unnecessary public functions, civil, military, or 
clerical ; and that in trade, as in land, a noblesse of capitalists, 
and a population of serfs working for them, may come to be 
the two main constituent parts in our social structure." * 

I shall afterwards have occasion to show, that it is the abun- 
dance of floating capital seeking investment, the competition 
of lenders with each other, and the consequent depression of 
the rate of interest, that is the great incentive to those wild and 
ruinous speculations which usually precede a commercial cri- 
sis, and are commonly, though improperly, attributed to some 
defective regulation of the currency. The state of the cur- 
rency, it is true, is an index of this perilous condition of things. 
The currency feels the first whispers of the approaching storm ; 
and it is by a judicious management of the banking system of 
the country that th6 force of the tempest may be somewhat 
checked. But the real origin of the difficulty is situated far- 
ther back, and is attributable to the imprudence of capitalists 



Notes of a Traveller, ed. of 1854, p. 187. 

24 



278 THE FIELD FOR THE USE OF CAPITAL. 

rather than bankers, who are mere agents of those who have 
the real power to control the market. 

But my present point is sufficiently illustrated, which is, that 
when a sufficient amount of wealth has taken the form of fixed 
capital to satisfy all the real wants of the country, — that is, 
when the whole establishment or fabric of agricultural, manu- 
facturing, and commercial industry is completed, — then, if 
savings from income continue to be made, they must be 
pushed into market as circulating capital seeking investment ; 
and the rate of profits and interest must decline from the com- 
petition which ensues. This is already the state of affairs in 
England ; and if we are still distant from it in the Atlantic 
States of om' own Union, it is because the new settlements 
which are constantly forming in the West operate as a drain 
upon our capital as well as our population ; and also because 
the field open for the productive investment of fixed capital in 
the gigantic improvements required in our immense territory 
is so vast, that centuries must elapse before it is fully occu- 
pied. 

The stationary state of wealth, which we thus see at the end 
of a long vista of years, is not a consummation to be dreaded. 
When capital enough has been accumulated to afford an in- 
come sufficient for all our wants, the only requisite for general 
happiness is, that it should be distributed v^th some approach 
to equality ; — not the visionary and perfect equality which the 
brain-sick schemers of France are vainly endeavoring to real- 
ize ; but the necessary approximation to it which is consistent 
with entire regard for the rights of property, and which must 
result from the mild and beneficent operation of laws which 
leave every man at liberty both to spend and to save, and 
which, at the decease of the first owner, distribute his inherit- 
ance equally among his natural heirs. 



MONEY. 279 



CHAPTER XVIII. 

THE THEORY AND USES OF MONEY. 

A HISTORY of the opinions of men respecting money, and 
the precious metals that are the material of which money is 
made, would be almost a complete history of the progress of 
Political Economy. The errors to which we are liable on a 
superficial consideration of the subject are so natural, so liable 
to be entertained by persons of ordinary judgment and ordi- 
nary means of information, that we cannot wonder at their 
having seriously affected the course of legislation in most coun- 
tries and the general policy of nations. The true theory of 
money, when nakedly stated, seems like a string of paradoxes, 
which are contradicted by the common sense of mankind. 
Yet the truth of this theory is now so clearly established, and 
the course of events in the commercial world has contributed 
so largely to illustrate it, that its fundamental principles have 
come to be regarded as axioms, which no one thinks of con- 
testing. A review of the mistakes which men committed in 
reasoning upon the subject in former times, of the causes 
which led to them, and of the very serious evUs which were 
their inevitable consequences, would be a curious and instruc- 
tive chapter in the philosophy of the human mind. I can 
notice but a few of these blunders, — those only, in fact, the 
confutation of which will help to establish and illustrate the 
doctrine that I wish to propound. 

As money is the universal medium of exchange, and as 
wealth itself subsists, or is continued in existence, only through 
an interminable succession of exchanges, all wealth must, more 
or less frequently, appear as money, and be reckoned or esti- 
mated as such. Money is the universal form or garb which 
aU the items or commodities that constitute wealth occasion- 
ally assume. At any one time and place, it is a universal 
measure of the comparative value of those commodities, and a 
common denomination, to which, when we wish to ascertain 
their aggregate or sum total, they are all reduced. K a man 



280 MONEY. 

is reduced to the necessity of borrowing, he borrows, not the 
particular articles that he actually wants, but the money where- 
with he can purchase those articles. If he pays a debt, he 
does not return the very articles that he borrowed, or an equiv- 
alent amount of a perfectly similar kind, but he pays a propor- 
tionate amount of money. The children in the house of an 
opulent trader, (to use once more Mr. Senior's happy illustra- 
tion,) having all the necessaries and comforts of Hfe supplied 
to them with mechanical regularity, without any effort or sac- 
rifice on their part, may never inquire into the machinery by 
which these effects are produced. But if their attention should 
be turned to the subject, finding that their father often talked of 
the difficulty of getting money, and seldom of the difficulty of 
spending it, — that he generally spoke of his fortune as con- 
sisting of the money he was worth, and that the motive which 
he generally assigned for refusing them any luxury was, that 
he had not money enough to afford it, — they would conclude 
that money alone was wealth, or the soHtary means of obtain- 
ing everything which is desirable ; that their enjoyments de- 
pended on the money which their father received, and were 
lessened by every other occasion he had for expending money ; 
and that their abundance, in truth, depended on the amount 
of money, for the time being, in his strong-box, and would be 
increased indefinitely, provided that this amount could be in- 
definitely augmented and retained. 

This now seems to us as the reasoning of children ; yet it 
was precisely thus that the legislatures and governments of the 
most civifized nations reasoned, down certainly to as late a 
period as the beginning of the last century. The most strin- 
gent, even sanguinary, laws were made to prevent the expor- 
tation of the precious metals ; and bounties were held out to 
favor the exportation of other commodities, for which, it was 
supposed, these metals would be received in exchange. Even 
so distinguished and sensible a philosopher as Mr. Locke 
argues thus : — " All other movable goods are of so consum- 
able a nature, that the wealth which consists in them cannot 
be much depended on ; and a nation which abounds in them 
one year may, without any exportation, but merely by their 
own waste and extravagance, be in great want of them the 
next. Money, on the contrary, is a steady friend, which, 



MONEY. 281 

though it may travel about from hand to hand, yet, if it can be 
kept from going out of the countiy, is not very liable to be 
wasted and consumed. Gold and silver, therefore, are the most 
solid and substantial part of the movable wealth of a nation " ; 
and to multiply these metals ought, he thinks, upon that ac- 
count, to be the great object of its political economy. Many 
worthy persons, even at the present day, though they do not 
reason quite so absurdly as this, are accustomed to deplore an 
unfavorable turn in our exchanges with foreign countries, not 
because it is an index of a real evil, — that we have been over- 
trading, or buying foreign goods on credit to an extent beyond 
our wants and our means, — but because it tends to drain the 
country of its precious metals, to lessen the specie basis on 
which our banks are trading, and thereby to diminish the secu- 
rity of our currency. 

In attempting to refute these errors, I shall speak first only 
of money properly so called, and not of its substitutes. In 
other words, I shall consider the currency as if it consisted ex- 
clusively of specie, or of coined gold and silver, and shall speak 
of the cu'cumstances which determine the value of such specie, 
of its utihty as one of the bases of its value, and of the man- 
ner in which its use as money affects the value of the bullion 
from which it is made. 

I say, then, that money is merely a contrivance for dimin- 
ishing the friction of exchange ; and though a safe and con- 
venient, it is also a very costly, contrivance for this end. It is 
absolutely unproductive except for this purpose ; it is a portion 
of the wealth of the country, it is true ; but it is a portion of 
our unproductive wealth, not of our capital. We are the 
poorer by the loss of profit or interest on all of it which we are 
obliged to keep on hand. Money (paradoxical as the asser- 
tion may seem) yields neither profit nor interest. It is only 
the goods or commodities that are transferred or exchanged 
by means of money, which yield profit ; and this profit or in- 
terest, as we have seen, depends on the mutations or changes 
of form that they undergo. The very reason which Locke ad- 
duces for the high estimate put upon money in comparison 
with other objects of wealth, — namely, its dm-ability, or the 
fact that it cannot be consumed, — is the cause why it is not 
productive. The specie which a merchant or a banker holds 
24* 



282 MONEY. 

in store, to provide against daily calls or sudden emergencies, 
is the only unproductive portion of his capital ; he is subject 
to a loss of interest on the whole amount thus retained. It 
has been already proved, that it is only through the constant 
transformations of capital, through its repeated consumption 
and reproduction, that it is made to yield a profit. And even 
as an article of unproductive wealth, it may be said of money 
that it gratifies no taste, and, in its capacity as money, apart 
from its character as a portion of wealth, it yields no enjoy- 
ment. The coin which a man keeps in his pocket does not, 
like his shoes or his hat, contribute to his comfort ; it is a con- 
venience to him only as it supphes immediate means for mak- 
ing small purchases or satisfying small demands. 

Thus it answers a useful purpose ; for, as I have said, it fa- 
cilitates exchanges. In this respect, it corresponds perfectly, 
if I may adopt Adam Smith's illustration, to the land which is 
used for roads and other avenues of passage and transporta- 
tion. The land thus appropriated affords no rent ; it cannot 
be used for the purposes either of agriculture or building. We 
cannot do without the roads, any more than we can do with- 
out money ; but the necessity of devoting much land to this 
use is a tax upon the community, and a tax to a serious 
amount ; for it yields no profit, and it costs a considerable 
sum for keeping it in repair. So the cost to a community of 
the money which it needs is a serious drain upon its resources. 
For money also needs to be kept in repair ; the loss by abra- 
sion, by actual rubbing down through much handling, is con- 
siderable. The deficiency in weight of the old, worn coins, 
when they are called in to be recoined, has to be made up by 
the public. An operation of this kind in WilHam and Mary's 
time, recoining all the specie currency of Great Britain, and 
issuing it again of the proper weight, cost the government 
about two and a half millions sterling, or twelve millions of 
dollars. McCulloch estimates the whole loss from abrasion, 
and from such accidents as shipwrecks, fires, and forgetting 
the places where hoards of it have been buried or otherwise 
concealed, at one per cent a year ; estimating, as Mr. Senior 
does, the whole metallic currency of England at thirty miUions 
sterling, or 150 millions of dollars, the annual cost of main- 
taining this currency in repair is about a million and a half of 
dollars. 



MONEY. 2S3 

This, however, is not the heaviest charge which the posses- 
sion of a large amount of coined money entails upon the na- 
tion. The loss of profit or interest may be estimated by 
regarding the specie currency as so much unproductive wealth, 
which, if it were turned into active capital, would increase 
the national income by a large annual profit. The whole 
gold and silver currency of France, for instance, is estimated 
at 400 millions of dollars ; considering the rate of profit in 
that kingdom to be only six per cent, the annual expense of 
keeping so much money within the limits of the country is 
twenty-four millions ; add one per cent as the cost of keeping 
the coin in repair, and the total expense is twenty-eight mil- 
lions of dollars, or more than half the sum which would defray 
the whole expense of our national government in a time of 
peace. We cannot estimate with much precision the amount 
of currency here in the United States ; but the returns of aU 
the banks in the Union, made to the Secretary of the Treasury 
in May, 1854, indicate that the average circulation of bank- 
notes is now about 200 millions of dollars, founded on specie 
reserves held by the banks, of sixty millions. The gold and 
silver in the treasury depositories of the United States at the 
same period amounted to twenty-five millions. If we suppose 
that forty millions of gold and silver coins are in the hands of 
individuals and other corporations than banks, an estimate cer- 
tainly not too large, we have 265 millions of dollars as the 
total of our circulation. The average rate of profit through- 
out the United States is at least as high as ten per cent ; add 
one per cent for the loss by abrasion, and by shipwrecks, fires, 
&c., and we have over twenty-nine millions for what would be 
the annual cost of our currency, did it consist exclusively of 
specie. In fact, a large portion of it consists of bank-notes, a 
cheap substitute for coin ; so the actual cost is but eleven per 
cent on 125 millions of specie, or a little less than fourteen 
millions a year. 

I should be unwilling to introduce these statistical computa- 
tions, if they did not contribute more powerfully than other 
arguments to overthrow the old popular errors, that coined sil- 
ver and gold alone constitute national wealth, or that they 
possess material advantages over every other commodity 
which is admitted to be wealth. There is no occasion to 

'oOOp|^ 



284 MONEY. 

undervalue the real service that is rendered by money ; it is 
just as essential in every civilized, nay, in every barbarous 
community, as a system of roads or other means of transpor- 
tation. Our only point is, that it is a very expensive servant, 
and that the true policy of nations is to get along with the use 
of as little of it as possible. We need a certain amount of 
money, proportioned to our population, the extent of our terri- 
tory, and the magnitude of our commercial operations ; to 
attempt to amass a larger amount than this, would be as great 
a folly as to lay out a greater number of roads than is neces- 
sary, and to build more carriages than are needed to carry the 
freight and passengers. Because specie is costly, there have 
been invented of late years a great variety of cheap substitutes 
for it, chiefly various forms or sorts of bank-notes, some of 
which are very useful, and others very miischievous expedients. 
The great advantage that gold and silver money possesses over 
them all is the perfect security that it affords ; the great disad- 
vantage is its expensiveness. 

The utility of such a universal medium of exchange as 
money is very clearly and briefly explained by Adam Smith. 
" When the division of labor has been once thoroughly estab- 
lished, it is but a very small part of a man's wants which the 
produce of his own labor can supply. He supplies far the 
greater part of them by exchanging that surplus part of the 
produce, which is over and above his own consumption, for 
such parts of the produce of other men's labor as he has occa- 
sion for. But when the division of labor first began to take 
place, this power of exchanging must frequently have been 
very much clogged and embarrassed in its operations." One 
man may have hats that he wishes to sell, and another person 
may wish to buy one. But the latter may have only bread to 
offer in payment, an article with which the former may be 
already provided. " No exchange can in this case be made 
between them. In order to avoid the inconveniency of such 
situations, every prudent man must naturally have endeavored 
to manage his affairs in such a way, as to have at all times by 
him, besides the peculiar produce of his own industry, a certain 
quantity of some one commodity or another, such as he imag- 
ined few people would be likely to refuse in exchange for the 
produce of their industry." If the whole community should 



MONEY. 285 

select and agree upon some one article for this purpose, every 
person in it would gladly accept this commodity in exchange 
for anything that he had to sell ; he would receive it, not be- 
cause he wished to use or consume it, but because he intended 
to buy something else with it ; and he knows that the person 
who has this other thing to sell, will readily part with it in ex- 
change for that commodity which all had agreed to accept. 
This is just the case with money ; every one is willing to re- 
ceive it, not because he intends to use it as a thing to be con- 
sumed, but simply because he knows that every one else is 
willing to take it in exchange. He receives it because he in- 
tends to part with it as soon as possible in exchange for some- 
thing that he does desire to consume. The first requisite, 
then, for an article that is intended to be used as money, is 
the willingness of everybody to receive it in exchange for any- 
thing that he wishes to sell ; and the characteristic quality of 
money is that it is not intended, and in fact is not fit, to be 
used for any purpose but that of being passed from hand to 
hand. It is simply a ticket of transfer, a medium of ex- 
change. 

It would seem, then, that almost any commodity might, by 
common consent, be used as money ; and, in fact, different na- 
tions have employed a great variety of articles for this purpose. 
The North American Indians used wampum, or smaU shell 
beads strung together as ornaments ; and our Puritan fathers, 
having very little silver and gold, gravely adopted this Indian 
money, and conducted their own traffic with each other, as 
well as with the savages, in wampum. Afterwards they used 
Indian corn, their staple product, as currency. Some African 
and East Indian tribes use cowries, another kind of small or- 
namental shells strung together ; the inhabitants of Newfound- 
land adopted dried cod for this purpose, and the Abyssinians 
rock-salt. 

Some considerations of convenience, however, have gener- 
ally inclined civilized nations to adopt one or more of the met- 
als for use as money. " Metals can not only be kept with as 
fittle loss as any other commodity, scarce anything being less 
perishable than they, but they can fikewise, without any loss, 
be divided into any number of parts, and by fusion these parts 
can be easily reunited, — a quality which no other equally du- 



286 MONEY. 

rable commodities possess, and which renders them peculiarly 
fit to be the instruments of commerce and circulation." The 
quantity of metal can be proportioned to the precise quantity 
of any other commodity which we have occasion to purchase. 
The weight and purity of a lump or bar of metal can also be 
determined, once for all, with great exactness ; and when de- 
termined, they can be made known by a stamp, proper precau- 
tions being taken against this mark being counterfeited, and 
the stamp being made to cover the whole surface of the piece, 
so that no portion of it can be abstracted without the loss 
being readUy perceived. The trader is thus relieved from 
two very considerable inconveniences, — the trouble of weigh- 
ing and of assaying every piece of metal which he receives. 
The qualities which recommend the metals for use as cur- 
rency indicate with sufficient clearness the second requisite 
of money, — namely, that it shall be a good common meas- 
ure of value, so that an exact equivalent can be offered in 
it for any amount or quantity of value which we wish to ex- 
change. 

The importance of this requisite appears from the experience 
of the ancient Greeks, who seem to have used cattle as money ; 
Homer tells us that the armor of Diomede cost only nine oxen, 
whilst that of Glaucus cost one hundred. " But cattle," says 
Colonel Torrens, " must have been a most inconvenient instru- 
ment of exchange. The person who wished to purchase a 
supply of cloth, and who had nothing to give in exchange for 
it but a sheep or an ox, would be obliged to buy cloth to the 
value of a whole sheep or a whole ox at a time. He could 
not buy less, because his medium of exchange, his money, 
could not be divided without loss ; and if he wished to pur- 
chase more, he would for the same reason be obliged to take 
double or treble the quantity, — the value of two or three sheep, 
or two or three oxen. Now, it is evident that a medium so 
bulky, so unportable and indivisible as cattle, would frequently 
obsti-uct the interchange of commodities. Finding it often 
difficult, and sometimes impossible, to exchange by means of 
cattle the surplus products of then- respective industry for the 
precise quantity of other articles which they might require, the 
inhabitants of the country in which cattle formed the only ac- 
knowledged measure of value would, on many occasions, be 



MONEY. ^ 287 

compelled to supply their various wants by combining in their 
own persons a variety of occupations. The divisions of em- 
ployment would therefore be very imperfectly established ; the 
productive powers of industry would be checked, and the coun- 
try withheld from the acquisition of that general opulence 
which, if it possessed a more perfect instrument of mercantile 
industry, it would be capable of acquiring." 

In fact, the want of a convenient medium of exchange in- 
creases in a direct ratio with the progress of the division of 
labor, and the consequent development of commercial indus- 
try. In the earliest stages of society, when each family raises 
and manufactures nearly all the commodities which it con- 
sumes, and therefore needs to effect but few exchanges, and 
can generally transact these by directly bartering its superflu- 
ities for necessaries, a very rude medium of exchange will be 
sufficient, or the people can do without money altogether. 
But when the division of labor is so far advanced that one 
man manufactures only a part of a knife-blade, or the fraction 
of a pin, and the industry of his neighbor is equally limited, 
some article must be selected for use as money, which will be 
a convenient and universally acknowledged measure of value, 
and possess all the other attributes requisite for effecting ex- 
changes with quickness and facility. 

Various metals have been used at different times for this 
purpose. The Spartans adopted iron, the ancient Romans 
copper, the Russians, at one time, platinum ; but modern na- 
tions, with great unanimity, have preferred silver and gold. 
One reason for this preference is, that they have great value in 
proportion to their weight and bulk. Silver, of course, is less 
convenient in this respect than gold ; to pay a debt of a quar- 
ter of a million of dollars would require the transfer of about 
five tons of metal. But the capital consideration in favor of 
these metals is, that they are less subject to fluctuations in 
value than any other commodity whatsoever. Not to be liable 
to sudden changes in value, nor as far as possible to any 
changes at all, is the third great requisite for money. From 
the time when the precious metals were first generally adopted 
for this purpose, up to the year 1848, they underwent only one 
great change in value, — that which followed the great in- 
crease in the supply of them consequent upon the discovery 



288 



MONEY. 



of the mines in Spanish America. This event, in the course 
of a century and a half, caused a depression of their value to 
about a fourth part of what it had been ; that is, an ounce of 
silver or gold in 1650 would purchase but one fourth as much 
food as could have been obtained for it a century and a half 
earlier. With this exception, and excepting also the change 
which the influx of Californian and Australian gold is now 
effecting, the precious metals have been very steady in value ; 
their quantity cannot be suddenly diminished; and the de- 
mand for them is so great, that any unusual productiveness of 
the mines cannot speedily lower their value. 

The other articles which have been used as money are sub- 
ject to sudden and great variations in value. An unusually 
abundant harvest may depress the price of corn one half in a 
single season. No one would be willing to accept in payment 
a commodity which might lose a large portion of its value 
while in his possession. Cattle cannot be preserved, or trans- 
ported from one place to another, without considerable trouble 
and expense ; and owing to a difference in their qualities, one 
ox might be worth two or three oxen of a different species. 
Salt, shells, and fish are equally liable to objection ; the values 
of equal quantities of them differ considerably ; some cannot 
be divided, and others cannot be preserved or transported, 
without some expense. 

For obvious reasons, tsvo or three metals are generally used 
together, for different denominations of money, in the same 
comitry. Gold, which contains the most value in proportion 
to its bulk, is most convenient for large payments ; it is not so 
well adapted for " making change," as it is called, or settling 
the fractional parts of an account, even the gold dollar which 
is coined in the United States being inconveniently small. 
For sums varying from five cents to a dollar, silver is the most 
convenient medium, copper being used when even a silver 
piece would be too minute in size. Copper coins, however, 
are employed only as tokens, being rated from 75 to 100 per 
cent above their real value. The privilege of issuing them at 
this nominal valuation is confined to the government, and they 
are made legal tender only to the amount of the smallest sil- 
ver coin. In France and some other countries, a compound 
of silver and some baser metal is sometimes coined, which not 



MONEY. 289 

only represents, but is actually worth, the small sums for which 
copper is used elsewhere. 

" Whatever may be the advantages attending the use of 
coined money," says McCuUoch, " and they are great and ob- 
vious, it is necessary to observe that its introduction does not 
affect the nature of exchanges. Equivalents are still given for 
equivalents. The exchange of a quarter of corn for an ounce 
of pure, unfashioned gold bullion, is undeniably as much a 
real barter, as if it had been exchanged for an ox or a barrel of 
beer. But supposing the metal to have been formed into a 
coin, that is, marked with a stamp indicating its weight and 
fineness, it is plain that circumstance could have made no 
change in the terms of the barter. The coinage saves the 
trouble of weighing and assaying the bullion, but it does noth- 
ing more. A coin is merely a piece of metal of known weight 
and fineness ; and the commodities exchanged for it are always 
held to be of equal value. And yet these obvious considera- 
tions have been very generally overlooked. Coined money, 
instead of being received in the same light as other commodi- 
ties, has been looked upon as something quite mysterious. It 
was said to be both a' sign, and a measure, of value. In truth, 
however, it is neither the one nor the other. A sovereign is 
not a sign; it is the thing signified. A promissory note, pay- 
able at some stated period, may not improperly be considered 
as the sign of the specie to be paid for it ; but that specie is 
itself a commodity, possessed of real exchangeable worth. It 
is equally incorrect to caU money a measure of value. Gold 
and silver do not measure the value of commodities, more than 
the latter measure the value of gold and silver. Everything 
possessed of value may either measure, or be measured by, 
everything else possessed of value. When one commodity is 
exchanged for another, each measures the value of the other. 
K the quartern loaf were sold for a shilling, it would be quite 
as correct to say, that a quartern loaf measured the value of a 
shilling, as that a shilling measured the value of a quartern 
loaf." 

To ascertain the relative value of different commodities at 
any one time and place, I have already said that money is the 
best measure, simply because a silver dollar or a gold sover- 
eign is a weU-known and convenient unit of measurement; 
25 



290 MONEY. 

when the coinage is in a perfect state, any one dollar or sover- 
eign is precisely equal in weight and fineness to any other 
dollar or sovereign ; and every article of value is more fre- 
quently exchanged for money than for any other one commod- 
ity. Tell a. shoemaker that a certain house is worth so many 
dollars, and the information will be definite and intelligible to 
him ; for he has been accustomed to barter shoes for dollars, 
so that, knowing what is the relative value of these two things, 
he can know by inference the relative value of the house and 
shoes, — the article that he is best acquainted with. But tell 
him that the house is worth so many oxen, and the information 
will probably be of little use ; for he has not been wont to ex- 
change shoes for oxen, and he knows that oxen differ widely 
from each other in value. 

To ascertain the relative value of commodities at different 
times, especially if a long lapse of years has intervened, a 
bushel of wheat is a better unit of measurement, though still 
an imperfect one, than a dollar. The discovery of new mines 
or deposits of the precious metals, or the exhaustion of old 
ones, may have so far affected the value of bullion, that an 
ounce of it at the later date may purchase only half as much, 
or twice as much, as at the former one. The quantity of sil- 
ver contained in a dollar in 1650, for instance, would buy only 
one fourth as much grain or meat as in 1500. But it cost 
about the same amount of labor to raise a bushel of wheat at 
one of these periods as at the other ; and the whole quantity 
of wheat raised in England bore about the same proportion to 
the whole number of persons to be fed. The value of wheat, 
then, for long periods, is more stable than that of gold and sil- 
ver. Still it is but an approximation to the ideal standard of 
value, which should be absolutely invariable. The corn-rents 
of lands in England which are let on very long leases have de- 
preciated in value much less than the money-rents. A still 
nearer approximation to a fixed standard of value might be 
obtained by taking the average prices of a dozen of the most 
necessary articles in common use, wheat being one of them, 
and sheep, oxen, hides of leather, wool, tallow-candles, soap, 
&c., being added. In the average of many, the effect of acci- 
dental circumstances in varying the price of any one of them 
for a few years w^ould be less a source of error. 



MONEY. 291 

The relative value of commodities at different places, as well 
as at different times, cannot be determined with any accuracy. 
Owing to differences of soil and climate, and the variety of 
articles that are used for human sustenance, the cost of food 
varies widely in different parts of the globe. The value of the 
precious metals in different lands will depend upon the extent 
of the use which is made of them, and upon the distance of 
the mines that produce them, and the ease or difficulty of com- 
munication with the mining regions. Perhaps the nearest ap- 
proach to a standard in such cases may be found in the value 
of an ordinary day's labor of a person of average strength and 
health. But it can be easily shown that this is only a rude 
approximation to the truth. According to Mr. Senior, " the 
average annual wages of labor in Hindostan are from one 
pound to two pounds troy of silver a year. In England, they 
are from nine pounds to fifteen pounds troy. In Upper Can- 
ada and the United States of America, they are from twelve 
pounds troy to twenty pounds. Within the same time, the 
American laborer obtains twelve times, and the English laborer 
nine times, as much silver as the Hindoo." This prodigious 
difference cannot be explained by the difference in the value of 
silver in the three countries ; for owing to the facilities of com- 
mercial intercourse between them, and the small cost of trans- 
porting silver from New York or Liverpool to Calcutta, an 
inequality of this sort could not exist ; dollars would be trans- 
ported to Calcutta, if they would purchase commodities of 
much greater value there than in England or America. Nei- 
ther can the whole difference be attributed to the only cause 
of it which is assigned by Mr. Senior; namely, the greater 
diligence, energy, and skill with which English and American 
labor is applied, the latter being assisted, moreover, by superior 
fertility of soil and greater extent of territory in proportion to 
the population. Unquestionably some effect is thus produced ; 
but as only rude labor is in question, it would be extravagant 
to assume that twelve Hindoos can accomplish only as much 
as one American. The inequality must rather be attributed 
in great part to the undue depression of the laboring classes 
both in England and Hindostan, arising from the very unequal 
distribution of wealth in the two countries, the great bulk of 
the population thus consisting of laborers for hire, who are 



292 



MONEY. 



solely dependent upon wages, and are constantly competing 
with each other for employment. In HQndostan, this effect is 
very much increased, of course, by the low standard of living, 
and the cheapness of rice and cotton cloth, which, in that cli- 
mate, are almost the only necessaries of life. In America, the 
laborer must have thicker and better clothing, more fuel, a 
more perfect shelter from the weather ; and he also expects a 
greater amount, variety, and delicacy of food. He is enabled 
to obtain these additional comforts, because the class to which 
he belongs is not so numerous in proportion to the rest of the 
community, because there is consequently not so much compe- 
tition for employment, and because, if wages are not high 
enough to satisfy him, he will leave the class of laborers, and 
become a small landholder, or enter into trade or manufacture 
on his own account. 

Adam Smith long ago distinguished the real price of com- 
modities from their fiominal price. Their real price, he says, 
is the labor which it costs to produce them. So it is ; but 
when they are once produced, their real selling price is the 
amount of the necessaries, conveniences, or amusements of life 
that can be obtained in exchange for them. Every man is rich 
or poor, according to the degree in which he can afford to en- 
joy these things ; and the real value or price of all the com- 
modities which he possesses, therefore, is the amount of these 
things which his commodities will purchase. On the other 
hand, the nominal price of his goods is the money — the num- 
ber of shillings or dollars — which they will bring. This price 
is called nominal, because for two reasons it is uncertain in 
amount ; it varies with the fluctuations in value of the precious 
metals, arising from the larger or smaller supply of them ob- 
tained from the mines, and it varies with the higher or lower 
price of the commodities which we wish to pm'chase with the 
money. The price may be nominally the same, that is, it may 
be represented by the same number of shillings or dollars ; but 
it may purchase a larger or smaller amount of commodities 
than before. Thus, wages and salaries have generally risen in 
the United States during the last five years, the amount of the 
increase being, on an average, at least fifteen per cent ; but 
the rise is only nominal, as $ 115 will not now purchase any 
more necessaries and comforts than could be bought for $ 100 



MONEY. 293 

in 1850. A portion of the rise is directly proved to be nomi- 
nal by the fact, that the dollar does not now contain so much 
pure silver as it did before 1853 by about seven per cent. 
Only 345.6, instead of 371.25, grains of pure silver are now 
coined into a dollar. 

It has already been said, that money is not a sign of value, 
because it possesses value in itself; it is the thing signified. 
It is custom and the general consent of the community, not 
the authority of government, nor the stamp upon the face of 
the coin, which causes money to pass current, Uke other com- 
modities, and to be received in exchange for them. The stamp 
is a convenience, as we have seen ; for it saves the trouble of 
weighing and assaying every piece which the seller receives. 
But if government should affix the stamp which now belongs 
to a silver dollar to a piece of copper of similar shape and size, 
and should call this base coin a dollar, it could not oblige the 
people to receive it as such, or to give their goods in exchange 
for it at its nominal valuation. It is not the stamp, nor the 
authority which affixes the stamp, but the known value and 
weight of the metal which receives the impression, that renders 
money universally acceptable, or gives it currency. In this 
matter, as in many others, the government even of a despotic 
state cannot govern, except by respecting the wishes and pref- 
erences of its subjects. If there was good reason to believe 
that any other commodity — wheat, for instance — > would pass 
more currently in exchange for the various articles which are 
needed, people would not give their goods for dollars, but 
would demand wheat, which would then be invested with all 
the properties of money. And this, as M. Say remarks, has 
sometimes occurred in practice, when the authorized or govern- 
ment money has consisted of paper which has lost pubhc con- 
fidence. The business of coining money, or of dividing the 
precious metals into pieces of a convenient shape and size, and 
affixing a convenient stamp, is usually retained exclusively in 
the hands of the government, to secure the advantages of uni- 
formity, undivided responsibility, and public confidence. If 
individuals were allowed to assume this office, we should be 
perplexed by a multitude of coins of different denominations, 
and we could never be sure that the stamp correctly indicated 
the weight and fineness of the metal. 
25* 



294 MONEY. 

Seigniorage is a charge made by government to defray the 
expenses of the mint, or the cost of converting bullion into 
coined money. The machinery for coining money is now 
brought to such perfection, that the actual expense of this pro- 
cess is but trifling ; it is computed to amount to one half of 
one per cent (.005) for gold coins, and one and a half per cent 
(.015) for silver coins. Some governments, among which, till 
recently, were those of Great Britain and the United States, 
performed this work gratuitously, or took upon themselves the 
expense of the coinage. Any person might carry any amount 
of gold and silver bullion of the requisite fineness to the mint, 
and, after the time required for coining so much metal had 
elapsed, or as soon as the demands of previous applicants were 
satisfied, he was entitled to receive an exactly equivalent 
weight of gold or silver coins. But the time required for the 
process, or to satisfy previous comers, involved the loss of a 
small amount of interest ; and it was therefore provided in the 
United States law, that the owner of the bullion might re- 
ceive an equivalent weight of gold and silver coins for it imme- 
diately, with a deduction of one half of one per cent, as an 
indemnification to the mint for the delay caused by the coin- 
age. At present, however, the law of 1853 provides that the 
depositor of gold bullion shall always pay this charge of one 
half of one per cent, and the government reserves to itself the 
privilege of issuing as much silver coin as the public seem to 
require, at a profit of about five per cent. The French gov- 
ernment levies a seigniorage of only 5 per cent on gold and li 
per cent on silver, — hardly enough to defray the actual ex- 
pense of the propess. Governments in former times attempted 
to convert their mints into sources of revenue, by charging a 
seigniorage of 10 or 15 per cent. This form of taxation, for it 
is nothing else, would not be practicable in our day, as private 
coiners would enter into competition with government, being 
stimulated by the large profits that would accrue from the 
manufacture of good coin. Their operations would flood the 
country with a depreciated currency ; the prices of other com- 
modities would rise in the same ratio with the over-valuation 
of money. 

Some writers have contended that the state should not 
make any charge for coining money, but that the expenses of 



MONEY. 295 

the mint should be defrayed by the public. They have an in- 
definite impression that the quantity of precious metals in the 
country might thus be increased, persons being encouraged to 
bring them hither by the opportunity of having them manufac- 
tured, or coined, gratuitously. Of course, this liberal offer of 
the government would tempt them to bring more bullion here 
to be coined ; the only question is, whether it would stay here 
after it was coined. It is difficult to see that the country 
would gain anything by having fifty millions of dollars annu- 
ally brought hither in bullion for the sole purpose of receiving 
the government stamp, and then immediately exported to Eu- 
rope, without paying our mint anything for the process, which 
costs over half a million of dollars. Dm-ing the five years 
beginning in January, 1850, the United States mint and its 
branches coined over 260 millions of doUars in gold. Hardly 
one third of this great amount of coin was needed for our own 
use ; in fact, the custom-house returns during this period show 
that about 170 millions in specie were shipped from this coun- 
try to Europe. What possible advantage can there be in 
bringing hither more gold than we want, transporting it first 
from San Francisco to New York, thence to Philadelphia, 
coining it there gratuitously at a heavy expense, carrying it 
back to New York, and then shipping it off immediately to 
London or Paris, where it will be melted up as soon as possi- 
ble, and converted into English or French coins ? Why should 
it not be shipped immediately to the place where it is needed, 
thus saving the entire expense of coinage, the cost of much 
unnecessary transportation, and the interest on the whole 
amount for at least two months' needless delay ? It must not 
be supposed that England will obtain the gold, either as bul- 
lion directly from San Francisco, or as coin by way of New 
York, without rendering a full equivalent for it in other com- 
modities ; or that the United States suffer any loss by allow- 
ing the miner to exchange his gold for other goods. Gold is 
only an article of merchandise, like copper, tin, and iron ; and, 
like them, it must be sent to the market where it is most 
wanted, and where, consequently, it can be sold to the greatest 
advantage. Would it be good policy, in order to increase the 
stock of copper in this country, to enact that the pig metal 
should be manufactured into sheets, plates, and rods at the ex- 



296 MONEY. 

pense of government, without charge to the owner, who should 
also receive a free gift of the interest on the whole value of the 
copper during the time required for its manufacture ? Such a 
law would doubtless bring all the Chilian copper hither, to be 
put into a form fit for use, and England and France would 
then obtain their share of it without any charge for the trans- 
formation it had undergone. As McCuUoch remarks, " those 
who contend that the state ought to defray the expense of the 
coinage, might, with equal cogency of reasoning, contend that 
it ought to defray the expense of manufacturing gold and sil- 
ver teapots, vases, &c. In both cases, the value of the raw 
material, or bullion, is increased by the cost of workmanship. 
And it is only fair and reasonable that those who carry bullion 
to the mints, as well as those who carry it to the jewellers, 
should have to defray the expenses necessarily attending its 
conversion into coin." 

"But there are other reasons," continues McCulloch, "why 
a seigniorage, to this extent at least, ought to be exacted. 
Wherever the expenses of coinage are defrayed by the state, 
an ounce of coined gold or silver, and an ounce of gold or sil- 
ver bullion, must be very nearly of the same value. And 
hence, whenever it becomes profitable to export the precious 
metals, coins, in the manufactm-e of which a considerable ex- 
pense has been incurred, are sent abroad indifferently with 
bulUon," and even in preference to it, as the latter must be 
weighed and assayed when it reaches its place of destination, 
while the coins bear the evidence of their weight and fineness 
on their face. " Admitting, however, that it were possible, 
which it most certainly is not, to prevent, or at least materi- 
ally limit, the clandestine exportation of coins, it is conceded 
on all hands to be quite nugatory to attempt to prevent their 
conversion into bullion. In this there is almost no risk. And 
the security with which their fusion can be effected, and the 
trifling expense attending it, will always enable them to be 
melted down and sent abroad whenever there is any unusual 
foreign demand for the precious metals. This exportation, 
however, would either be prevented or materially diminished 
by the imposition of a seigniorage or duty, equal to the expense 
of the coinage. The coins, being by this means rendered 
more valuable than bullion, would be kept at home in prefer- 



MONEY. 297 

ence ; and if, as Dr. Smith has observed, it became necessary 
on any emergency to export coins, they would, most likely, be 
reimported. Abroad, they would be worth only so much bul- 
lion ; while at home, they would be worth this much, and the 
expense of coinage besides. There would, therefore, be an 
obvious inducement to bring them back, and the supply of cur- 
rency would be maintained at its proper level, without its 
being necessary for the mint to issue fresh coins." 

An alteration in the relative value of gold and silver, or, in- 
deed, between any other two media of exchange which are 
united in one currency, produces immediately a marked effect. 
The one which is over-valued, or of which the nominal exceeds 
the real value, at once displaces or pushes out the other, and 
takes the whole circulation to itself. As fast, for instance, as 
gold becomes depreciated in consequence of the influx of that 
metal from the deposits recently discovered, silver will disap- 
pear, or cease to be used as currency, if measures are not 
taken to obviate this effect by putting a smaller amount of sil- 
ver into a dollar. The reason is obvious. Suppose this depre- 
ciation to amount to only five per cent, or that silver in that 
ratio should become more valuable than gold. Then, every 
one who makes a purchase or pays a debt in silver, pays five 
per cent more than if he used gold. Silver would generally be 
sold, or exchanged, for gold, in order to obtain the premium, 
or difference in value ; and because, if used as coin, it could 
only pass at par with gold, it would be melted up, and devoted 
to the other uses to which it is subservient, — as to the manu- 
facture of plate, — or it would be sent out of the country. 

Hence the great inconvenience that is experienced, when, in 
a country where both specie and bank-notes are current, the 
latter become depreciated in consequence of the failure of the 
banks to redeem them in specie. The immediate effect is, that 
the smaller coins, which supply " change," as it is called, at 
once disappear, being gathered up by the money-changers, and 
either melted, or sent out of the country to some place where 
the depreciated notes will not pass current. - The only mode 
of stemming this current is for the banks to restrict their issues, 
till the necessity for having a certain amount of value to fill 
the ordinary channels of circulation raises the value of the de- 
preciated notes again to par. Another cause tends to increase 



298 



MONEY. 



the drain of gold and silver under such circumstances. Money 
being the universal medium of exchange, its value operates re- 
ciprocally against prices ; that is, as money rises in value, 
prices fall ; and as money is depreciated, prices of all other 
commodities rise. Of course, in the latter case, goods are im- 
ported in large quantities, to take advantage of this rise in 
price. These goods must be paid for, and as they come from 
foreign countries, where the depreciated money will not pass, 
gold and silver must be collected to discharge the debt. In 
this manner, even the smaller coins are gathered and sent off, 
till it becomes impossible to obtain "change" for the smallest 
bank-note. The necessity of having some money of a small 
denomination then gives currency to some remarkable substi- 
tutes for coin. Omnibus tickets, pieces of bank-notes, and 
tokens, or " shin-plasters," as they are vulgarly termed, — cer- 
tificates of value to a small amount, issued by municipal au- 
thority, and receivable in payment for taxes, — all circulate as 
money, and supply the place of " change." 

The principle, that money which is depreciated in real value, 
though to a very slight amount, always drives out, and takes 
the place of, the sounder portion of the currency, received a 
remarkable illustration from the operations of the banks in 
Massachusetts about thirty years ago. Up to that time, the 
bills of the country banks were redeemed only at their own 
counters, in various parts of the State. The operations of trade 
brought large amounts of their bills into Boston, where they 
circulated as currency. But the banks in Boston would not 
receive them, either on deposit or in payment of notes; for 
they could not afford to sort them into parcels, and send one 
little parcel into Berkshire, and another to Nantucket, bringing 
back from each place a corresponding amount of coin, with all 
the expense of transportation. These country bank bills, con- 
sequently, not being redeemable in the place where they circu- 
lated, were naturally depreciated, or became subject to 
discount, in comparison with the bills of the Boston banks, 
which were redeemed in specie on the spot. The discount 
was very small, varying from one to two per cent, according 
to the distance of the bank from Boston. What was the con- 
sequence ? These depreciated and so far dishonored bills 
drove the good Boston bills almost wholly out of the market, 



MONEY. 299 

and, so to speak, took the circulation to themselves. The law 
which I have spoken of, that a depreciated or over-valued me- 
dium of exchange will drive away the sound currency, was 
fully exemplified. How this result was effected can be easily 
explained. Every merchant who had dealings with the Boston 
banks laid aside or reserved all the Boston bank-bills that he 
received, for the sake of making deposits or paying his obliga- 
tions at the banks. The country bank-bills that came into his 
hands he paid out again, either in change to his customers, or 
in payment for articles purchased. Thus the depreciated 
country bank paper was maintained in circulation ; the good 
bills, not subject to discount, were returned to the banks as 
soon as issued. Every one knows that the profits of a bank, 
other things being equal, depend on the amount of their paper 
which they can keep in circulation. The country banks, there- 
fore, profited by the dishonor of their paper; the Boston banks 
suffered by keeping up the credit of their bills. This injustice 
and loss could not be tolerated. Most of the Boston banks 
entered into a combination, headed by the Suffolk Bank, to 
compel the banks in the country to make provision to redeem 
their bills, not only at their own counters, but also in the me- 
tropolis, where often they had a larger circulation than in the 
locality where they were issued. Each of these banks was to 
be compelled to maintain on deposit with one of the Allied 
Banks, a sum in specie large enough to redeem immediately 
any amount of their own notes which might be offered to any 
or all the banks in Boston. Then the Allied Banks could 
afford to receive country bank paper at par. They would no 
longer be subject to discount, and would consequently keep 
only their share of the circulation. If any country bank should 
refuse to enter into this arrangement, and refuse to make the 
specie deposit in Boston, the Allied Banks would still receive 
its paper at par, till, having accumulated a large amount of its 
notes, they would suddenly, without warning, cause the whole 
sum to be presented at once at its counter for payment, a 
measure which would infallibly break the recusant bank. 

This was the famous Allied Bank, or Suffolk Bank system, 
the object of so much discussion and obloquy at the time, but 
now so fully vindicated, and still in successful operation. It 
was represented as a high-handed act of oppression, a warfare 



300 MONEY. 

of the strong against the weak, of the rich Boston corporations 
against their feeble but honest brethren in the country, — an 
attempt to compel the country banks to redeem their paper in 
two places at once, and to lend large sums in specie without 
interest to their oppressors in the metropolis. But when the 
subject is fully understood, nothing can be clearer than the ab- 
stract justice and expediency of the course then adopted and 
still pursued. So great are its advantages even to the parties 
who at first fancied themselves oppressed by it, that other 
country banks, not within the range of the system as first pro- 
posed, have petitioned to be admitted into it. It is both the 
duty and the interest of every institution that issues bills to 
serve as currency, to preserve these bills from depreciation in 
every place where they circulate to any extent. If, by any 
strange chance in the course of ti'ade, the bills of our Boston 
banks should come to circulate in London, strict justice and 
sound policy would require them to make provision to redeem 
their paper in that city. 

But this is a digression, which I have entered into only for 
the purpose of explaining the manner in which two media of 
exchange, like gold and silver, united in the same currency, 
affect each other. The government at any time may cause 
either to predominate, or nearly crowd the other out of circula- 
tion, by causing the preferred metal to be a little overrated in 
its relation to the other. It is made legal tender at a rate a 
little above its market value as bullion ; or what would amount 
to the same thing, the metal which the government desires to 
drive out of circulation is made legal tender at a rate a little 
below its market value. Till within five years, France, pre- 
ferring silver, underrated gold coin a little, so that silver circu- 
lated almost exclusively in that country, and gold coin could 
be obtained there only by paying a little premium. In Great 
Britain, on the other hand, till 1816, silver was underrated in 
proportion to gold, so that the latter metal circulated by prefer- 
ence, except in change for small sums ; and though, at the 
period spoken of, this state of things was reversed, yet in order 
to prevent the overvalued silver currency from driving the gold 
out of the country, it was enacted that silver should be legal 
tender to the extent of forty shillings only, and private persons 
were prohibited from coining it. Silver, consequently, in 



MONEY. 301 

Great Britain occupies merely a subordinate place in the cur- 
rency, just as copper does in that country and else\vhere. In 
the United States, tiU the Gold Bill of 1834 was passed, gold 
was underrated, and therefore had disappeared from the circu- 
lation, — the product even of our own gold mines in Carolina 
and Georgia being sent to England for coinage. To remedy 
this evil, the Gold Bill was passed, requiring the eagle, which 
was rated at ten silver dollars, to contain only 232 grains of 
pure gold, instead of 247, which were formerly put into it. Of 
course, 23.2 grains of gold, or 371.25 grains of silver, passed 
indiiferently for one American doUar ; these two numbers are 
in the relation to each other very nearly of one to sixteen, 
which was, up to 1850, about the true relation of the market 
values of the two metals ; and they therefore circulated indif- 
ferently in this country, till the discoveries in California and 
Australia again changed their relation to each other. 

Not many years ago, our small-coin currency was flooded 
with old Spanish pistareens, as they were termed, — a much 
worn coin, worth about 18| cents. They had come into circu- 
lation as of the value of 20 cents ; and in consequence of this 
over-valuation, amounting to nearly 8 per cent, nearly all of 
these coins which were in existence found their way hither. 
To drive them out, it was resolved at the post-offices and the 
banks, that they should be received only at the valuation of six 
to a dollar, or 16§ cents, — a point as much below their true 
value as the former estimate had been above it. The effect 
was almost instantaneous ; the coins were either melted up or 
sent out of the country, and a pistareen is now rarely to be 
seen. Whenever it is judged expedient to drive out the old 
Spanish eighths and quarters of a doUar, most of which have 
lost from 6 to 8 per cent of their value by abrasion, a similar 
course must be adopted. 

The precious metals have an inherent value of their own, 
wholly apart from their use as money. They are used in the 
arts, in fabricating plate and jewelry, and thus bear a price in 
the market like any other commodity, founded on the uses 
which they subserve, and the difficulty of obtaining them, or 
the amount of labor which must be expended for then produc- 
tion. It is a knowledge of this fact, that they have an inde- 
pendent value, less liable to fluctuation than that of any other 
26 



302 MONEY. 

commodity, which gives them currency as money, which 
causes individuals to receive them with confidence that their 
value will not be depreciated while in their hands. And it is 
important to observe, that their adoption to serve as money 
considerably augments their intrinsic value, or thek worth as 
an article of commerce. It is equivalent to the discovery of a 
new utility of these metals, and a consequent enlargement of 
the demand for them, while the supply is left as it was before. 
The employment of a great part, the half, or perhaps three 
fourths, of the whole stock of them on hand, as money, neces- 
sarily renders the whole more scarce and dear. In a word, the 
employment of the precious metals in manufacture makes 
them scarcer and dearer as money ; and in like manner, their 
employment as money makes them scarcer and dearer in man- 
ufacture. I dwell upon this point, because, when we once see 
that the precious metals derive a part of the value with which 
they are invested solely from their use as money, we shall be 
better prepared to admit, what I shall afterwards have occasion 
to prove, that other articles, of little or no intrinsic value, may 
be used as money, and, in consequence solely of such use, may 
receive a very high value. 

There is a larger demand for silver in the arts and for pur- 
poses of ornament, than for gold ; and this larger consumption 
of silver makes its value higher in comparison with gold than 
it would be if their respective values were determined solely 
by the comparative quantity of each which is produced or can 
be obtained. Silver plate, in greater or less quantity, is in 
almost universal use ; gold plate, from its greater expensive- 
ness, is hardly at all in use, except by crowned heads, or per- 
sons of immense fortunes. Silver-plated ware is also manu- 
factured in great quantities, while comparatively few articles 
are coated with gold, except in the form of gold-leaf, which is 
very cheap on account of its marvellous tenuity and fragility. 
Silver spoons are to be found in almost every house ; and the 
consumption of this metal for watches and trinkets is also very 
great. The consequence is, that, though 45 times more silver 
than gold existed, and was annually produced from the mines, 
the value of silver was to that of gold, not as 45 to 1, but as 
16 to 1. Its cheapness enlarged its use ; and the extensive- 
ness of its use, on the other hand, counteracted its cheapness, 
or rendered it dearer. 



MONEY. 303 

If we apply this principle to the depreciation of the value of 
gold, which is now taking place on account of the recently en- 
larged supplies of that metal, we see at once a new limit to 
that depreciation, or a reason why it cannot go so far as it oth- 
erwise would. To double the present amount of gold bullion 
in the market would not be to sink gold coin to half of its 
present value. As its value fell, the use or consumption of it 
would be greatly increased. Gold plate would become fash- 
ionable, gold trinkets would be far more common, and gold 
would even be applied to certain purposes in the arts, for 
which it is admirably fitted by its ductility, great specific 
gravity, and power of resisting oxidation or corrosion, — uses 
from which it is now excluded by its high cost. The discov- 
ery of America increased the supply of gold and silver tenfold ; 
but they were thereby reduced, not to one tenth, but only to 
one fourth, of their former value. 

The most important quality of money, when considered as 
an engine of commerce, and even as a means of civilization, is 
its stability of value. If money is depreciated in value, every 
creditor in the community, during the time of its depreciation, 
suffers loss and wrong to the full extent of the fall in value ; 
he has lent, we will suppose, a thousand dollars, at a time 
when that sum was equivalent to two hundred barrels of flour, 
or a proportionate amount of any other commodity ; and he is 
paid when the sum will no longer purchase more than one 
hundred and fifty barrels: and what he unjustly loses, his 
debtor, of course, unjustly gains. If the value of money rises, 
this process is reversed ; the creditor now gains, and the debtor 
loses, both in proportion to the enhancement of value. In for- 
mer centuries, governments, when heavily in debt, often had 
recourse to a depreciation of the coin, as a means of relieving 
themselves from their embarrassments. It was beyond their 
power to effect an actual change in the market value of gold 
and silver bullion, such as would result from an enlarged or 
diminished supply of these metals from the mines. But their 
debts were contracted under a certain denomination, just as a 
debtor at the present day is bound to pay a certain number of 
dollars, under an implied, but not an express agreement, that 
the dollar shall retain its present, or rather its former, amount 
of metal, — that is, 371i grains of silver, or 23.2 grains of 



304 



MONEY. 



gold.* If the government should decree that the dollar in fu- 
ture should contain only 186 grains, he might nominally 
release himself from his debt by paying only half of what he 
had really contracted to pay. This is a very rude expedient, — 
an actual license of universal bankruptcy, all claims being re- 
leased on a payment of 50 per cent. It has not been tried in 
modern times, for even the courts of law would afford a rem- 
edy against so gross a fraud. But it was frequently resorted 
to in the Middle Ages, and a cm-ious monument of the fact is 
preserved to us in the names of certain coins. The English 
pound sterhng, in the time of Edward I. contained a pound- 
weight of silver of known fineness ; and the English penny 
was then a real pennyiveight of silver, — the twentieth part of 
an ounce, or the two hundred and fortieth part of a pound. 
Even the word shilling seems to have been originally a denom- 
ination of weight, or another name for an ounce. By successive 
depreciations of the coin, the pound, shilling or ounce, and 
pennyweight of money have come to contain only a third part 
of the silver which their names indicate. A pound sterling 
contains less than four ounces of silver. The Scotch pound 
has only a thirty-sixth part, and the French livre, or pound, 
only a sixty-sixth part, of their original weight of silver. 

This mode of depreciating the metallic currency was called, 
by a singular abuse of language, " raising the standard." It 
has not been tried in modern times, as I have said, because it 
is so palpable a fraud that the courts of law would probably 
afford a remedy against it. But these courts give no redress, 
as we all know, against a depreciation of jmper currency pre- 
cisely similar in its character and effects. In May, 1837, all 
the banks in the United States suspended specie payments ; 
and the immediate consequence was a depreciation of their 
paper, or a rise of specie to a premium, differing in amount in 
the various States according to the various degrees of solvency 
of their respective banks ; but of which the average for the 
whole country was at least as high as 12 per cent. The natu- 
ral consequence followed, that all specie disappeared from the 
circulation, and all obligations were discharged in paper, — 



* The silver in the dollar was diminished in 1853 to 345.6 grains, for reasons to 
be explained hereafter. 



MONEY. 305 

that is, by the payment of 88 cents on the dollar. If a person 
lent $ 1,000 in April of that year, to be repaid in June, he lent 
what was in fact 1,000 silver dollars, each worth 100 cents, and 
he received back only 1,000 paper dollars, each worth 88 cents. 
This event, of course, was an act of national and universal 
bankruptcy ; every creditor received only about seven eighths 
of what was due to him, for an entu'e discharge of his debt. 
The government of the United States alone, in the exercise of 
its prerogatives as the sovereign, refused to submit to this loss, 
and obliged all its debtors to pay specie ; — an act of strict 
justice, it is true, but one which caused it a greater loss by bad 
debts than it would have suffered by consenting to share the 
misfortune equally with the community ; and which was far- 
ther so unpopular, that it was the chief cause of the overthrow 
of the then existing administration. 

This general bankruptcy was not the only evil, or the only 
injustice, caused by the suspension of the banks. The com- 
munity had to undergo another shock when specie payments 
were resumed, though the burden was reversed in reference to 
the class of sufferers. The debtors now suffered wrong, the 
creditors were unjustly benefited. If, for instance, a man ob- 
tained a loan of $ 1,000 while the depreciation was at its 
height, he received only what was equivalent to one thou- 
sand times 88 cents in specie ; and if the day of payment came 
after the resumption, he was obliged to pay 1,000 times 100 
cents. But the 88 cents in one case, and the 100 cents in the 
other, being both called a dollar, — so great is the deceptive 
power of mere names, — most persons probably were not sen- 
sible of the wrong they actually suffered. Yet to suppose that 
the dollar was the same thing in the two cases, would be as 
great an error as to imagine that the pound troy weight of 
silver was the same thing as the pound sterling of modern 
times. 



26 



306 THE DISTRIBUTION OF GOLD AND SILVER: 



CHAPTER XIX. 

THE DISTRIBUTION OP THE PRECIOUS METALS THROUGHOUT THE 
AVORLD : SUBSTITUTES FOR MONEY : BILLS OF EXCHANGE I THE 
COURSE OF INTERNATIONAL TRADE. 

Metallic currency, or money properly so called, it was 
shown in the last chapter, is a safe, but a costly, means of 
effecting exchanges. It is safe, because it is not subject to 
such ruinous fluctuations of value as took place in the paper 
currency of this country between 1836 and 1843. It is costly, 
because the expense of keeping it in repair, and the loss of 
profits on so large an amount of what may be called " dead 
capital," amount, in this country, to at least eleven per cent. 
It then becomes important to know what are the substitutes 
for its use, — substitutes which we may expect to find less safe, 
but also far less expensive, than metallic money. And as a 
preUminary to this inquiry, we wish to know how much cur- 
rency is needed in each country, — or rather, since its numer- 
ical amount cannot be ascertained with any precision, how the 
quantity needed is affected by the growth of the population, 
the extension of commerce, the progress of opulence, and the 
general state of civilization ; and also, by what law the whole 
quantity now in existence is distributed among the various na- 
tions of the earth, and in what way it preserves its equilibrium 
among them. To these inquiries the present chapter will be 
devoted. 

In every exchange, the two values which are exchanged for 
each other are supposed to be equal. Every exchange is a 
barter of a quantity of merchandise for a certain sum of money 
which is its equivalent. But it does not follow that there 
must be in the community as much money as there is mer- 
chandise ; for as the money is not consumed by effecting this 
exchange, it is ready immediately to effect another purchase. 
The same piece of money may be exchanged successively 
for any number of articles of merchandise of the same 
value ; or, in other words, any sum of money can purchase 



SUBSTITUTES FOR MONEY. 307 

successively a quantity of merchandise worth an infinitely 
larger sum. 

The circulation of money and of merchandise bears some 
analogy to the momentum spoken of in physical science, which 
is composed of the velocity multiplied by the mass ; the mo- 
menta are equal, though the velocity should be increased ten- 
fold, provided that the mass is but one tenth part as great. 
So, also, the momentum of wealth is its value multiplied by 
the rapidity of its circulation. As money circulates far more 
rapidly than merchandise, it is evident that (the number of 
exchanges on both sides being equal) there must necessarily 
be less value in the money than in the merchandise, and as 
much less as the circulation of the money is more rapid than 
that of the merchandise. If the value of the merchandise 
which changes hands in a country in the course of a year 
amounts to a thousand millions, and the circulation of the 
money is ten times as quick as that of the merchandise, a 
hundred millions of money will effect all the exchanges. Let 
the quickness of the money circulation be doubled, and fifty 
millions will suffice. 

Mr. J. S. Mill has stated this point very clearly. " If we as- 
sume the quantity of goods on sale, and the number of times 
those goods are resold, to be fixed quantities, the value of 
money wiU depend upon its quantity, together with the aver- 
age number of times that each piece changes hands in the pro- 
cess. The whole of the goods sold (counting each resale of 
the same goods as so much added to the goods) have been 
exchanged for the whole of the money, multiplied by the num- 
ber of purchases made on the average by each piece. Conse- 
quently, the amount of goods and of transactions being the 
same, the value of money is inversely as its quantity multi- 
plied by what is called the rapidity of ckculation. And the 
quantity of money in circulation is equal to the money value 
of all the goods sold [including all the resales as additional 
goods] , divided by the number which expresses the rapidity of 
circulation." 

Stating the matter algebraically, we have 
g- 5 = m r ; 

where g = quantity of goods on sale ; 

s = number of times the goods are resold ; 



308 THE DISTRIBUTION OF GOLD AND SILVER : 

m = quantity of money in circulation ; 

r = number of purchases effected by each piece of money. 
Of course, any three of these quantities being given, the fourth 
can be deduced from them. Thus, 

as 

7)1 = ^— i 
r 

which is the principle just enunciated. It is also evident, that 

the value of money will be inversely as its quantity ; for if we 

suppose the quantity of money to be doubled, we still have 

g-s = 2mr ; 

whence, 2 wi = — ; 

r 

that is, 2 m is worth only the same value which was formerly 
represented by m. 

This calculation, however, excludes aU exchanges that are 
directly effected by barter, or into which money does not enter ; 
and these, as we shall afterwards see, reaUy constitute a large 
part of mercantile transactions. The formula represents only 
money purchases. Direct exchange of one commodity for an- 
other, by the process vulgarly called " swopping," is evidently 
not affected by any valuation, however arbitrary, of those com- 
modities in money ; though the two are usually represented in 
money, at the current market price, for convenience of calcula- 
tion and intermixture with other accounts. 

"The phrase, 'rapidity of circulation,' " continues Mr. Mill, 
" requires some comment. It must not be understood to mean, 
the number of purchases made by each piece of money in a 
given time. Time is not the thing to be considered. The 
state of society may be such, that each piece of money hardly 
performs more than one purchase in a year ; but if this arises 
from the small number of transactions, — from the small 
amount of business done, the want of activity in traffic, or be- 
cause what traffic there is mostly takes place by barter, — it 
constitutes no reason why prices should be lower, or the value 
of money higher. The essential point is, not how often the 
same money changes hands in a given time, but how often it 
changes hands in order to perform a given amount of traffic. 
We must compare the number of purchases made by the mon- 
ey in a given time, not with the time itself, but with the goods 
sold in that same time. If each piece of money changes hands 



SUBSTITUTES FOR MONEY. 309 

on an average ten times while goods are sold to the value of a 
million sterling, it is evident that the money required to circu- 
late those goods is £ 100,000. And conversely, if the money 
in circulation is £ 100,000, and each piece changes hands by 
the purchase of goods ten times in a month, the sales of goods 
for money which take place every month must amount on the 
average to £ 1,000,000. 

" Rapidity of circulation being a phrase so ill adapted to ex- 
press the only thing which it is of any importance to express 
by it, and having a tendency to confuse the subject by sug- 
gesting a meaning extremely different from the one intended, 
it would be a good thing if the phrase could be got rid of, and 
another substituted, more directly significant of the idea meant 
to be conveyed. Some such expression as ' the efficiency of 
money,' though not unexceptionable, would do better ; as it 
would point attention to the quantity of work done, without 
suggesting the idea of estimating it by time. Until an appro- 
priate term can be devised, we must be content to express the 
idea by the circumlocution which alone conveys it adequately, 
namely, the average number of purchases made by each piece in 
order to effect a given pecuniary amount of transactions^ 

As a nation increases in opulence, the value of the merchan- 
dise it circulates also increases ; and consequently it has need 
of more money. But this need does not increase in the same 
proportion with its wealth. In rich countries, the activity of 
the circulation enables the people to effect then* exchanges 
with a smaller quantity of money. A given sum will suffice 
for ten exchanges, when in a poor country it might have 
effected but one. Besides, it is in wealthy countries that 
credit most easily takes the place of money. Not only bank- 
bills, but all sorts of private obligations, — drafts, bills of ex- 
change, sales on credit, and clearances^ (terms which will 
afterwards be explained,) — all become substitutes for money. 

But confining ourselves for the present to the distribution of 
coined money among the various nations of the earth, I ob- 
serve, that the amount which is needed by any country, and 
which actually circulates among its inhabitants, does not de- 
pend in the least upon the quantity which the government of 
that country sees fit to coin, or upon the activity of its mint. 
International exchanges bring the coin of one country to circu- 



310 THE DISTRIBUTION OF GOLD AND SILVER: 

late in another; sometimes it is melted up and coined over 
again for this purpose, sometimes it circulates, or is held in 
reserve, under its original stamp. Often the larger portion of 
the specie reserves held by our banks consists of English 
sovereigns. During the sixteenth and seventeenth centuries, 
Spain and the Spanish colonies had the first coinage of nearly 
all the precious metals which found their way into cu'culation 
in Europe, simply because Spain owned the most produc- 
tive silver and gold mines. The value of the money annually 
coined in our own United States mints, from 1841 to 1846, 
varied from two millions to eleven millions. Li 1847, it rose 
to nearly twenty-three millions, much English coin and bullion 
being brought hither in payment for the immense quantity of 
bread-stuffs which we exported that year, because the crops in 
Europe were deficient ; in the following year, it fell again to 
about six millions. From 1850 to 1854, the influx of Califor- 
nian gold raised it to an average of fifty or sixty millions an- 
nually. Of course, the quantity actually in cnculation could 
not have varied thus rapidly and largely. The fact is, — and 
I crave attention to the statement as an important and preg- 
nant one, — that the quantity of the precious metals retained 
in circulation as coin, for the whole world, regulates itself 
through the aggregate amount of money actually needed by 
all mankind to effect their exchanges, — regulates itself wholly 
irrespective of the efforts made by one government, or by all 
governments, to increase or diminish its amount. K more 
money is coined than is thus needed to supply the aggregate 
want, it will infallibly be melted up again ; if the mints are 
not active enough to supply this want, a pressure will be felt 
somewhere, which will compel them to quicken their action, or 
private coiners will somewhere take the business out of their 
hands. 

And it is just so with the distribution of this aggregate 
amount of coin among various countries. No one nation can, 
either by the efforts of its government, by its laws, or by con- 
cert among its individual members, increase or diminish the 
quantity of money that circulates among them ; — by no efforts 
directly looking towards this end, I should say; for, unques- 
tionably, a tyrannical or foolish government, or an unwise 
course of legislation, may paralyze the energies of commerce, 



SUBSTITUTES FOR MONEY. 311 

root out manufactures, or blast the hopes of the agriculturist, 
and thus lessen the amount of money needed, by destroying 
many of the enterprises and exchanges in which money is em- 
ployed. But no laws prohibiting the exportation of specie, or 
making it penal to melt up the current coin, — no laws de- 
signed to foster one branch of trade more than another, under 
the belief that this particular traffic brings more coined money 
into the country than any other, — no such laws, I say, can 
ever permanently increase the amount of money in circulation. 
The currency distributes itself among different nations, in due 
proportion to the circumstances of each, just as easily as water 
finds its level in a pond ; and such legislation as I have just 
adverted to can have no more effect upon such distribution, 
than would be produced upon the level of the pond by dipping 
up water in a bucket from one part and pouring it into an- 
other. 

It is possible, to be sure, to displace a portion, or even the 
larger part, of the specie currency, and make paper currency, or 
some other substitute, take its place ; and the specie thus dis- 
placed will either go abroad or be melted up. But the total 
amount of the currency will remain just as before ; the value 
of the paper and the precious metals taken together will be 
just w^hat the specie alone would be, if paper were not used. 
Suppose, for instance, that the currency of the United States 
consists of 200 millions of dollars, of which three fifths are 
paper money, and two fifths are specie. We might destroy 
all the paper portion, and specie enough would flow in from 
abroad to make up the currency to 200 millions again ; or we 
might add so much to the paper, that all, or nearly all, the 
specie would leave us and go abroad. But the impassable 
limit to the real value of the paper issued would even then be 
200 millions of dollars. If 300 millions of paper dollars were 
stamped and issued, the inevitable consequence would be, that 
it would sink in value, or become subject to a discount of one 
third, so that the aggregate real value would remain as before. 

This self-adjusting power of the cm-rency is a fact which it 
is difficult to establish directly, because the amount actually 
needed varies from day to day with the varying opulence of 
the country and the varying activity of commerce and circula- 
tion. If 200 millions be the amount now wanted, 220 millions 



312 THE DISTRIBUTION OF GOLD AND SILVER: 

may be needed next month, as a consequence either of our in- 
creased wealth within that time, or of a check to our prosper- 
ity and a diminished activity of circulation, growing out of a 
general want of confidence, and a disposition on the part both 
of banks and of individuals to hold larger sums in reserve. 
The practice of hoarding, though most common in the Asiatic 
states, where it is a precaution taken by individuals against 
arbitrary exactions by a despotic government, is not unknown 
in the most civilized communities of Europe and America. In 
times even of general prosperity and quiet, many persons of 
the lower and more ignorant classes keep by them a little fund 
in specie, stored away, perhaps, in an old stocking, as a pre- 
caution against a rainy day ; and though the establishment of 
Savings' Banks has greatly diminished the number and amount 
of these little hoards, there are stUl enough of them, in the ag- 
gregate, to keep a considerable portion of the metallic cur- 
rency, as it were, in a state of abeyance. If the currency be a 
mixed one of paper and specie, and if some event should hap- 
pen to disturb public confidence, such as the bursting of a 
commercial bubble, or the discovered mismanagement of two 
or three banks, then commences what is called " a run upon 
the banks " generally, the effect of which is greatly to increase 
the number and amount of these hoards. To provide against 
the possible recurrence of such panics, the banks are obliged to 
keep much larger amounts of specie in reserve than would suf- 
fice for their ordinary transactions. The qviantity of specie 
required as a basis and security for the circulation of the banks 
is like the thickness of timber and planking in the sides of a 
ship ; it must suffice not merely for ordinary fair weather, but 
for possible storms and squalls, and now and then a sand-bank. 
The gold and silver coin thus stored up by banks and individ- 
uals is not a part of the circulation proper ; the whole currency 
of the country may be divided into two portions, only one of 
which is active, or is daily employed in effecting exchanges ; 
the other for a time is latent. This last portion is somewhat 
arbitrary in amount, depending upon the character of the peo- 
ple and their mood for the time being ; it is only the active 
portion of the currency which has the self-adjusting power 
that I have spoken of. 

In respect to the varying amounts of specie thus held in re- 



SUBSTITUTES FOR MONEY. 313 

serve by the banks, and so not entering into active circulation, 
Mr. Tooke justly observes, that " transmissions of the precious 
metals might and would take place occasionally between 
[Great Britain] and other countries to a considerable amount, 
(five or six millions at least,^ without affecting the amount or 
value of the currency of the country from which or to which 
the transmissions were made ; and without being a cause or a 
consequence of alteration in general prices." The stock of 
specie and bullion in the Bank of England, which, before 1848, 
used to average only about eight or nine millions sterling, in 
the summer of 1852 rose to twenty-two m.illions, or more than 
double the amount which the law regards as a safe basis for 
its circulation. But the amount of bank-notes in active circu- 
lation was not thereby increased ; it was not materially greater 
than it had been six years before. At least twelve millions of 
this large bank reserve might have been sent to foreign coun- 
tries, to import corn or any other needed article, without with- 
drawing a sovereign from the active currency, or affecting in 
the slightest degree the prices of other commodities. In fact, 
since 1852, about six millions have actually been withdrawn 
from the reserve, which now does not exceed sixteen millions ; 
and yet prices generally, far from receding, have considerably 
advanced. 

Every export of the precious metals, therefore, is not to be 
regarded as a contraction of the currency properly so called, 
nor is every import of them an enlargement of it. At the pres- 
ent time, in consequence of the large supplies from California 
and Australia, large amounts of bullion are in transitu, — wan- 
dering about, as it were, from one country to another, to find 
where they will be of most value, — before they pass into ac- 
tive circulation as currency. The stock of bullion in the hands 
of goldsmiths and silversmiths, ready for conversion into plate 
or jewelry, and, stiU more, the stock of it which already exists 
in the form of plate, the setting of jewels, lace, gilding, &c., 
might surely be exported in part, or altogether, without affect- 
ing the money market, or lowering the prices of commodities 
generally. But at least eight millions sterling out of the specie 
reserve in the Bank of England is as dead for all purposes of 
circulation, or for any effect upon prices, as if it existed only in 
the form of plate ; for the reserve has not fallen below eight 
27 



^'W 



014 THE DISTRIBUTION OF GOLD AND SILVER : 

millions for the last thirteen years, and we have only the word 
of the bank officers for our assurance that this sum still exists 
in the vaults, where it has remained undisturbed at least since 
1842. It is only when the demand for the precious metals to 
be exported has so far reduced the stock of specie in the banks 
as to alarm the latter for their own safety, and thus to cause 
them to diminish then* discounts and their circulation, that the 
self-regulating power of the active currency shows itself. 

The power of the currency thus to determine its own 
amount, arises from the reciprocal action of the quantity of 
money in active circulation and the prices of commodities. 
All exchange, as I have said, is a barter of merchandise for 
money; and the quantity of money which an article of mer- 
chandise will command in the market is termed its price. If 
I barter directly one article of merchandise for another, with- 
out the intervention of money, the quantity of that other arti- 
cle which I can obtain will depend upon the whole quantity 
of it in the market, when compared with the demand for it. 
Should there be more of it than there is needed or asked for, I 
can obtain a larger quantity of it in barter for the goods which 
I have to offer; should there be less than is wanted, I can 
obtain but little. Now money is that which is offered in 
exchange for all commodities ; and the price of all articles 
depends upon the quantity of money, or active currency, which 
exists in the country. Increase that quantity, and the price of 
all articles inevitably rises ; diminish it, and the price as cer- 
tainly falls. The whole process of exchange may be compared 
to the operation of weighing with a weU-poised balance, the 
money and the merchandise being placed on the opposite arms 
of the lever ; increase the weight on the money side, and the 
merchandise is sure to rise. The whole operation was exem- 
plified on the largest scale in the sixteenth century, after the 
discovery of the rich gold and silver mines on this continent. 
The quantity of coined money was increased by this discovery 
fourfold ; and the prices of all articles rose all over the world 
to four times their former amount. This was called a noniinal 
rise of prices, and it was nominal ; for as there was no circum- 
stance which could affect the real value of all the articles of 
merchandise at once, it was, in truth, not the merchandise 
which rose in value, but the money which fell. The fact, then, 



SUBSTITUTES FOR MONEY. 315 

is a proof of my first position, that the real value or true 
amount of all the currency in the world cannot be increased or 
diminished at pleasure, but regulates itself; increase the quan- 
tity of it, and its true value falls in the same proportion. 

We can now easily see why this fixed amount of currency 
for the whole world distributes itself, by its own laws, among 
aU nations, according to their respective wants. If by any 
means one nation should obtain a larger portion of the whole 
cm-rency of the world than falls to it by the regular course of 
trade, all articles of merchandise belonging to that nation must 
rise in price ; they must be exchanged for a larger quantity of 
money. Articles of foreign growth and manufacture would 
be irresistibly attracted thither by this alteration of values. A 
single article might possibly be excluded by prohibitory legisla- 
tion. But no arbitrary enactments can so clip the wings of 
commerce as to prevent it from seeking a market in a country 
where the prices of all commodities have risen above their aver- 
age value all the world over. Foreign goods must necessarily 
be imported in such a case, whether by open trading or by 
smuggling; and being imported, they must be paid for. 
Money is the only redundant article in such a community, the 
only one w^hich can be offered in payment ; for all other goods 
are, by the hypothesis, of a higher price with them than in any 
other country, and cannot be sent abroad but by a sacrifice. 
Money, then, would be exported, in spite of all coast guards, 
and even of the penalty of death ; and the currency would thus 
be reduced to its natural level. 

The irresistible tendency of money to go abroad from places 
where it exists in excess, was well illustrated in 1852, both in 
San Francisco, California, and in Melbourne, Australia. In 
consequence of the immense influx of gold from the " dig- 
gings" in the neighborhood of these places, the prices of all 
commodities there rose to an extent which seems almost in- 
credible. Flour was $ 30 a barrel ; the wages of ordinary labor 
were ^ 8 a day ; ^ 60 a ton was paid for coal.* Of course, 

* Mr. Howitt gives the following list of prices of poultry and dairy produce in 
Melbourne, as late as May, 1854, after the excitement had somewhat subsided. 
" Turkeys, 20s. to 25s. each ; geese, 20s. to 30s. each ; domestic ducks, 20s. a pair ; 
fowls, 16s. to 18s. a couple ; and eggs, 3s. to 4s. a dozen. Fresh butter is bringing 
from 4s. to 5s. a pound; and sweet milk from Is. 6d. to 2s. a quart." 



316 THE DISTRIBUTION OF GOLD AND SILVER: 

these prices caused a prodigious importation of foreign goods. 
" While in 1850, the year before the gold discovery," says Mr. 
Howitt, " the imports of the whole colony amounted to only 
<£ 744,925, for the year ending April 5, 1854, the declared value 
of imports at the port of Melbourne alone had reached the 
enormous sum of £ 17,675,472." The markets were quickly 
glutted by this rush of goods from abroad, a reaction took 
place, and prices fell almost as suddenly as they had risen. 
Whole cargoes were sold at auction, and did not bring enough 
to pay the expenses of freight and insurance. Meanwhile, 
however, the gold had been shipped off to pay for the imported 
commodities which had been sold at extravagant rates ; and 
the further supplies obtained from the auriferous districts 
ceased to appear in the market as money, where they would 
have a disturbing effect on prices, but were reckoned as bul- 
lion, or an ordinary commodity for export, and sent to the 
ports where it could be sold on the most favorable terms. 

Californian and Australian experience is rich in instruction 
on some other points in the theory of money, which are but 
imperfectly understood by most persons. Thus, when the 
rates of interest are very high, it is generally said that there is 
a scarcity of money ; and conversely, when these rates are low, 
money is thought to be abundant or cheap. But the truth is, 
paradoxical as it may seem, that the abundance or scarcity of 
money, or currency, has nothing to do with the rates of inter- 
est, which rise or fall in proportion only to the quantity of 
floating capital which happens to be in the market seeking in- 
vestment; and what is usually termed the '-'•money market" 
is more properly called the loan market. So, at the period just 
referred to, both in Melbourne and San Francisco, money was 
marvellously plentiful and cheap, as was indicated by the ex- 
travagantly high prices of all commodities. At the same time, 
the rates of interest at those places were exorbitant, varying 
from 36 to 48 per cent a year ; these rates prevailed because 
profits were very high, and there was a great deficiency of cap- 
ital^ notwithstanding the extraordinary abundance of money. 

So, also, the severe reverses which attend a period of wild 
speculation, terminating in a " commercial crisis," are usually 
imputed to the bad management of the banks, which are said 
to deluge the community with their " paper money," as it is 



SUBSTITUTES FOR MONEY. 817 

reproachfully called, at one moment, and at the next, are com- 
pelled to withdraw then: excessive issues, and to raise the value 
of money as suddenly as they had lowered it, greatly to the 
detriment of the mercantile community, who suffer equally by 
each extreme. To restrict the issue of bank-notes, and to re- 
cur to a " hard currency," is the measm-e usually recommended 
at such periods to prevent the return of the calamity. But the 
fact is, that neither paper money nor coined money has any- 
thing to do with these injurious alternations, which usually 
proceed from the opening of a new source of business, sup- 
posed to be attended with immense profits, the rush of capital- 
ists into this new employment, the extravagant rates of interest 
which they are tempted to pay from their anticipation of ex- 
travagant profits, and the inevitable recoil or disappointment 
of their hopes, either from the new business being overdone, or 
fi-om the detected fallacy of the original representations con- 
cerning it. No commercial crisis was ever more severe than 
that which occurred in California in 1853-4, and in Australia 
in 1854 - 5 ; and these surely were not attributable to any im- 
proper action of the banks, for there were then no banks of 
issue in those countries, and the " hard currency " which had 
always existed there did not avert the storm. Not the abun- 
dance of money, but the excessive profits which resulted from 
the anomalous state of trade there, first created the fever of 
speculation which was the original source of the evU ; and the 
scarcity of money was so far from being the cause, or the char- 
acteristic feature, of the recoil, that hard money continued to 
be throughout the crisis, what it had been in the preliminary 
period, the staple article of export to other lands. 

But this is a digression, and I return to the subject of the 
equalization of the currency. We have seen what will be the 
turn of trade when money is redundant. In the other case, if 
the currency of any nation should fall below the average pro- 
portion to its wants, the prices of all merchandise would fall, 
they being exchanged against a smaller amount of money. 
There would be a tendency, then, to export all commodities, 
since a profit could be made by the sale of them in foreign 
countries rather than at home. And in payment for the com- 
modities thus sent abroad, money must be returned till the 
equilibrium of the currency is restored. Thus the equal dis- 
.27* 



318 THE DISTRIBUTION OF GOLD AND SILVER! 

tribution of specie among all countries, in proportion to the 
wants of each, takes place through the inevitable tendencies of 
trade, all goods invariably seeking a market where they can be 
sold to the best advantage. The equalization of money is but 
another name for the equalization of prices. The general prin- 
ciple has been clearly stated by INIr. Ricardo, who has shown 
" that redundancy and deficiency of currency are only relative 
terms ; and that, so long as the currency of a particular country 
consists exclusively of gold and silver coins, or of a paper im- 
mediately convertible into such coins, its value can neither rise 
above nor fall below the value of the currencies of other coun- 
tries by a greater sum than will suffice to defray the expense 
of importing foreign coin or bullion, if the currency be defi- 
cient ; or of exporting a portion of the existing supply, if it be 
redundant." 

Regarding this principle as established, that the currency is 
of a fixed amount or value, I come now to consider the vari- 
ous practices and expedients by which the necessity of filling 
up the whole of this currency with so costly a material as gold 
and silver coin is obviated. Some of these may properly be 
viewed, not as substitutes for the precious metals, but as prac- 
tices which have grown up in commercial countries, whereby 
commercial transactions are really completed without the inter- 
vention of any money. Such are what are termed accounts 
current, opened between merchants who have frequent dealings 
with each other. If, for instance, A has occasion, in the course 
of a year, to make a hundred different purchases of B, and B 
to buy as frequently and about as largely from A, were each 
transaction to be completed and settled by itself at the time, 
tw-o hundi'cd transfers of different sums of money from one to 
the other must be made in a twelvemonth. But if each party 
chose to allow the other credit till a fixed time for settlement, 
then the whole amount of piuchases on one side might be de- 
ducted from the whole amount on the other, and only the bal- 
ance be paid in money. If nine tenths of an account are thus 
settled by offsets, and only one tenth by cash, it is evident that 
nine tenths of the trade has been a direct barter of one kind 
of merchandise for another, just as if money, or a universal 
medium of exchange, had never been invented. It is by prac- 
tices analogous to this, rather than by increased rapidity of cir- 



SUBSTITUTES FOR MONEY. 319 

culation, as I believe, that a nation's want of currency does 
not increase in as rapid a ratio as its population and its opu- 
lence. Even when the sales are all made by one of the parties, 
a person who has credit with him may adjust by a single pay- 
ment in cash several hundred different purchases made at vari- 
ous times since the former settlement. It is important to 
remember such familiar facts as these, when an attempt is 
made to attribute all the evil of over-trading to an undue ex- 
pansion of paper currency, and a scarcity of specie. We see 
that over-trading may take place to any extent, without the 
intervention of any currency whatever, whether paper or me- 
tallic. 

Another mode of avoiding the frequent transfer of specie is 
the transfer or sale of debts. If a merchant has a sum of 
money due to him by one person. A, while he owes an equiv- 
alent sum to another, B, he can cancel both obligations at 
once, without having the money pass through his own hands 
at all, by simply giving B an order upon A for the amount 
required. Here, one operation — one transfer of currency — 
evidently takes the place of two ; instead of A paying the 
given sum to the merchant, and the merchant immediately 
paying it over to B, A pays it directly to B, and the account 
is squared aU round. K the merchant does business in New 
York, while A and B are both resident in London, such an 
order is called a bill of exchange, and the saving of trouble and 
expense that is effected by it is very obvious ; without such an 
order, A must pay his debt by shipping the required amount 
of specie from London to New York ; and then the merchant, 
in order to pay Ids debt to B, must immediately ship the spe- 
cie back again to London. There would then be a loss of 
time enough for making two voyages across the ocean, a loss 
of interest on the money during this time, and the cost of 
freight and insurance on the amount during two voyages. All 
this expense and inconvenience are saved by the simple expe- 
dient of a biU of exchange, or an order for the transfer of a 
debt. 

It may happen that the merchant, though he has a debt due 
to him in London, does not himself owe any money in that 
city ; still, he will not be obliged to have the specie sent to him 
by sea, if he can find another merchant in New York who 



320 THE DISTRIBUTION OF GOLD AND SILVER: 

does owe a debt in London to precisely the same amount. 
The first merchant, C, will tlien sell his debt to the second 
merchant, I), or in other words, sell him a bill of exchange, 
which, when paid in London by A to B, at once cancels A's 
debt to C, and 1^'s debt to B. Two payments of money, the 
one from A to B, who are both in London, and the other from 
D to C, who are both in New York, evidently cancel four obli- 
gations, two of which, one from A to C, and another from D 
to B, are eliminated, or set olV against each other, their direct 
adjustment being inconvenient, because the respective parties 
to them reside in difTerent cities. 

We can now multM-stand what is meant by the course and 
par of exchange. All the merchants in New York who have 
debts iIhc to flinn in T^ondon, draw bills of exchange for the 
amount of these debts, and go into market to sell these bills to 
other New York merchants who have debts to pay in London. 
If the former si't have a larger amount to sell than the latter 
have occasion to buy, — or, in other words, if a greater amount 
of debt is due from London to New York, than from New 
York to London, — the competition of the selling merchants 
with each other will lower the price of these bills a little, or 
subject them to a small disco mit. A bill of exchange for one 
hundred dollars may not bring in the market more than 98| 
dollars ; the exchange is then said to be 1| per cent against 
London, or 1| per cent below par. It cannot fall much lower 
than this, for the merchant, rather than take 98 dollars for his 
bill, will cause the 100 dollars to be sent over to him by his 
London debtor in specie ; the freight, insm*ance, and other 
charges, cannot amount to more than two dollars. Whenever, 
then, the exchange falls about 1| per cent below par, we may 
expect that shipments of specie from England to America will 
begin. On the other hand, if a gi-eater amount of debt is due 
from New York to London than from London to New York, 
then there will be more buyers than sellers of such bills in New 
York market ; and the competition of these buyers with each 
other may cause a bill for $ 100 to sell for $ 101.50. The dif- 
ference cannot be much greater than this, or it would cause 
specie to be shipped from America to England. The exchange 
is then said to be against New York, or Ij per cent above par. 
In order to simplify this explanation, I have supposed the 



SUBSTITUTES FOR MONEY. 321 

metallic currency of the two countries to consist of the same 
denomination of coin, — namely, of dollars. But this is not 
the case ; the New York merchant who has a debt due to him 
in London, draws a biU of exchange, not for so many dollars, 
but for so many pounds sterling, or sovereigns. Now the 
American dollar, or the tenth part of an eagle, contains, as we 
have seen, 23.2 grains of pure gold, and the English sovereign 
has 113 grains and a small fraction. These two numbers are 
to each, very nearly, as 1 to 4.87. The exchange, then, is 
really at par when a bill on London for 100 pounds sterling 
sells in New York for 487 dollars. This, I say, is the real par ; 
the nominal par, established in 1789, and ever since retained in 
exchange operations, made the dollar equal to 4^. Qd. sterling, 
and the pound sterling, therefore, worth only $ 4.44. The pres- 
ent value of the pound sterling, $ 4.87, is about % per cent 
more than this ; and therefore the exchange is really at par, 
when, according to the prices current, it is 9| per cent above 
par. The expense of shipping specie either way being about 
1| per cent, when the exchange nominally rises to about 11 per 
cent, specie wiU be shipped from New York to London ; when 
it nominally falls below 8 per cent, specie will be shipped from 
London to New York. As the quoted price of exchange at 
New York is for bills on London at sixty days' sight, allow- 
ance must be made for interest for this time. 

It is easy to see that the par of the currency of any two 
countries means, among merchants, the equivalence of a cer- 
tain amount of the currency of the one in the currency of the 
other, supposing the currencies of both to be of the precise 
weight and purity fixed by their respective mints. Thus, ac- 
cording to the mint regulations of Great Britain and France, 
the same quantity of pure gold which in London is coined into 
one pound sterling, in Paris is coined into 25 francs and 20 
centimes ; and accordingly, this is said to be the par between 
the two countries. The exchange between the two countries 
is said to be at par when bills are negotiated on this footing ; 
that is, when a bill for X 100 drawn on London is worth 2,520 
francs in Paris, and conversely. As we have already seen that 
$ 4.87 in New York equals one pound sterling in London, it 
follows that 1 4.87 also equals 25 francs 20 centimes in Paris ; 
or, what is the same thing, one American dollar is worth 5 



322 THE DISTRIBUTION OF GOLD AND SILVER : 

francs 17 centimes and a small fraction, which is the par of 
exchange between France and the United States. 

From the explanation now given, it appears very clearly that 
bills of exchange represent the items in the account current be- 
tween England and America ; and the specie shipped either 
way is the cash balance that is struck on the adjustment of the 
account. Bills of exchange are not drawn against air ; they 
represent real transactions. The New York merchant cannot 
draw bills on London unless he has debts due to him there, 
which debts have been contracted for cotton, flour, tobacco, 
and other American products, which he had sent thither to be 
sold. On the other hand, a New York merchant cannot have 
debts to pay in London, except in return for manufactured 
goods, whether of cotton, silk, woollen, or iron, which he has 
received from England, and consumed or sold in America. 
And in the long run, it is evident that our exported goods 
must exactly pay for our imported goods, or the two sides of 
the account must balance each other. If they did not balance, 
if our exports were not equivalent in value to our imports, the 
deficiency would have to be made up by sending specie 
abroad ; and a continued drain of specie, according to what 
has already been demonstrated, would raise the value of the 
money left behind, and, in consequence of raising the value of 
money, would lower the prices of goods in America ; and the 
influx of specie into England would lower the value of money 
there, and raise the prices of goods. Erelong, then, the tide 
would turn ; more goods would be sent from America, where 
they are loiver in price, to England, where they are higher in 
price ; and in payment for these goods, the cm-rent of specie 
would set in the opposite direction, till the value of money in 
the two countries was equalized again.* 



* There is a curious feature in the management of the trade between England and 
the United States, which is in marked contrast with the course of mercantile trans- 
actions between England and all other commercial nations. For some inexplicable 
reason, the bills of exchange are all drawn one way. In Boston and New York, 
bills can always be purchased on London or Liverpool ; but neither London nor 
Liverpool is supplied with any bills on Boston or New York. When cotton or flour 
is purchased in America for the English market, the seller draws bills of exchange 
on the consignee of the goods for the proceeds of the sale, and disposes of these bills 
in the New York market. But when manufactured goods are bought in Great Brit- 
ain for the American market, the seller, instead of drawing directly on the New 



SUBSTITUTES FOR MONEY. 323 

The exports of any country must exactly balance its im- 
ports, for the same reason that, when two individual produ- 
cers of different articles trade exclusively with each other, they 
must reaUy barter merchandise for merchandise, exchanging 
equivalent values of different kinds ; money serving no pur- 
pose between them but that of facilitating the exchanges of 
goods ; — and this is, in fact, the only office that money, as 
such, ever performs. It is oil that diminishes the friction of 
exchanges. K, for instance, a hatter trades exclusively with a 
shoemaker, the former can buy no more shoes than he can sell 
hats with which to pay for them. He may, indeed, run in 
debt for a large stock of shoes at once ; but that debt he wiU 
be obliged ultimately to pay by restricting his purchases of 
shoes, and enlarging his sales of hats. So, this country, trad- 
ing with all the rest of the world, can buy no more foreign 
products than it has domestic products with which to pay for 
them. Money and bills of exchange cannot help us to pay our 
debts ; they only facilitate and represent the operations out of 
which those debts have grown. Thus, in the fatal year 1836, 
the imports into the United States were about 190 millions of 
doUars, and the exports were less than 129 miUions, — appar- 
ently a balance of 61 millions against us ; a sum much too 
large to be accounted for by the ordinary profits of trade and 
charges of transportation. We ran deeply in debt that year, 
and had to suffer for it afterwards. In 1838, the balance was 
5 millions, and in 1839, it was 41 miUions, the other way. 
The sum of these two, or 46 miUions, probably paid off, or 



York merchant to whom the goods are consigned, draws on a banker in London, 
and the bills so drawn are accepted by the banker on commission for the American 
purchaser, who undertakes to make provision for them before they become due by 
making remittances of English bills which he purchases in New York. Of course, 
the London banker, by accepting the bills before remittances are made to meet them, 
becomes responsible for their payment, and charges an extra commission for assum- 
ing this responsibility. 

In reference to this anomalous course of business, Mr. "W. J. Lawson, the author 
of a "History of Banking," remarks : " To place the trade of America on the same 
footing as that of all other commercial nations has long been a desideratum. Nu- 
merous appeals, in the shape of pamphlets and other publications, recommending 
the adoption of a course of exchange between the two countries, have brought con- 
viction to the mind of almost every mercantile man ; yet, strange to say, no step has 
yet been taken to effect the object; it is an evil which must ultimately work its own 
cure." 



324 THE DISTRIBUTION OF GOLD AND SILVER : 

nearly paid off, the balance contracted the other way, in 1836, 
of 61 millions. For it is important to state, that, although we 
must really pay for our imports with om* exports, the former 
must always exceed the latter in nominal amount, if we take 
the home valuation of both. This may easily be perceived by 
attending to a single voyage of one ship. Suppose a mer- 
chant sends a cargo of oil to Russia, and brings back a ship- 
load of duck, iron, hemp, and other Russian products. If his 
venture be a successful one, it is evident that the aggregate 
value of the return cargo must so far exceed that of the out- 
ward cargo as to pay the charges of transportation both ways, 
and afford a reasonable profit on both parts of the transaction. 
Estimate the values in the Russian port, and it will appear 
that oiu* general proposition holds true ; the oil exactly paid 
for the duck, iron, and hemp, — the exports just balanced the 
import. Estimated in the American port, the duck, iron, and 
hemp exceed in value the oil enough to pay the charges of the 
voyage and leave a profit. 

I borrow another striking illustration of this law from a 
speech by the great Senator of Massachusetts. Many " years 
ago," says Mr. Webster, "in better times than the present, 
a ship left one of the towns of New England with seventy 
thousand specie dollars. She proceeded to Mocha on the 
Red Sea, and there laid out these dollars in coffee, spices, 
drugs, &c. With this new cargo, she proceeded to Europe ; 
two thirds of it were sold in Holland for one hundred and thirty 
thousand dollars, which the ship brought back, and placed in 
the same bank from the vaults of which she had taken her 
original outfit. The other third was sent to the ports of the 
Mediterranean, and produced a return of twenty-five thousand 
dollars in specie, and fifteen thousand dollars in Italian mer- 
chandise. These sums together make one hundred and sev- 
enty thousand dollars imported, which was a hundred thou- 
sand dollars more than was exported " ; and yet, in each 
foreign port which the ship visited, equal values were ex- 
changed. In those ports, the imports exactly balanced the 
exports; but in the New England harbor, the imports ex- 
ceeded the exports by this large sum, which, minus the charges 
of transportation, was all profit. 

This illustration brings us to an important qualification of 



SUBSTITUTES FOR MONEY. 325 

the principle as first stated, and to an explanation of another 
purpose, or office, of bills of exchange. To simplify the mat- 
ter, I supposed at first that the United States traded with Eng- 
land alone, that bills of exchange facihtated our transactions 
with her; and we were thus led to the general proposition, 
that foreign trade is really a barter of merchandise for mer- 
chandise, equal values being exchanged, and money playing 
only a very subordinate part in the affair. But foreign trade is 
only a long and heavy account current of one nation with all 
the rest of the world, charges on one side being set off by 
charges on the other, and the account being finally adjusted 
by the transfer of a comparatively triffing sum in cash to rep- 
resent the balance. Our trade is not confined to England ; it 
extends to every nation of the earth, and to every isle of the 
sea. The account is not balanced with each nation sepa- 
rately ; far from it. In the case of China, our purchases very 
much exceed our sales ; in the case of the British kingdom, 
our sales very much exceed our purchases. We set off one 
case against the other ; we pay our debt to China by transfer- 
ring to her a portion of the debt owed to us by Great Britain, 
— bills of exchange enabling us to transfer debts not only from 
one individual to another, but from one country to another. 
We annually buy tea and other Chinese products to the 
amount of lOi millions ; we export directly to China less than 
four millions. The balance, which is evidently too great to be 
accounted for solely by charges of transportation and profits of 
trade, we pay by sending to China bills of exchange on Lon- 
don. On the other hand, our annual exports to the British 
West Indies are from four to five millions, while our imports 
from these islands seldom exceed one million. We may re- 
ceive pay for the balance by bills of exchange on London ; 
that is, the West India planters pay us for the articles of pro- 
vision that we send to them, by transferring to us a part of the 
debt due to them for the sugar, molasses, spirits, &c., which 
they have sent to England. These very bills of exchange, em- 
anating from the British West Indies, we might use in paying 
our debt to China for tea. One article of merchandise is reaUy 
paid for with another, though the one is obtained from Can- 
ton, and the other is sent to Jamaica. Very little money is 
used in the whole circle of transactions ; a single shipment of 
28 



326 THE DISTRIBUTION OF GOLD AND SILVER: 

half a million of dollars may suffice to balance an immensely 
loiiii; account, opened with England, the continent of Europe, 
China, and both Indies, amounting in the aggregate to sixty 
or seventy millions. 

If we examine the facts as they are given in the official re- 
turns, we find that they agree with the theory. The reports, 
for instance, for the year ending June 30, 1844, show that the 
imports entered for consum])tion, exclusive of specie, amounted 
to more than 90 millions of dollars, while the coin and bullion 
we sent abroad that year was but $ 5,454,214. Our total ex- 
ports of domestic produce for that year exceeded 90 millions, 
while the specie we received from abroad was but $ 5,830,429. 
The actual cash balance that year, of course, was the ditier- 
ence of these tvvo sums of specie ; that is, only $ 376,215. 
And this was the balance of an account current of the United 
States with all the world, which had 96 millions on one side, 
and 99 millions on the other. Again, if w^e take the year 
1846, we find the imports amounting to over 110 millions, 
while the specie sent abroad was less than 4 millions ; the ex- 
ports were nearly 102 millions, and the specie received was a 
little more than 3^ millions. In other words, a remittance of 
$ 127,536 in cash would have settled an account in which 102 
millions were sold, and 110 millions purchased. 

If we examine the returns for a series of consecutive years, 
and anywhere lind an apparent departure from this rule, either 
by an excessive importation or excessive exportation of specie, 
we also perceive a corresponding excess of exports or imports, 
proceeding from some peculiar causes aft'ecting the course of 
trade for that year ; and we find, moreover, a recoil the follow- 
ing year, produced by that self-regulating power of the curren- 
cy which has been explained. Take, for instance, the follow- 
ing table, which I have compiled from the Secretary of the 
Treasury's Report for 1854. 

Year cmling 

June 30, 1844 
1845 
1846 
1847 
1848 
1849 

Here we find, for 1847, a great excess of specie imported, 



Imports entoroil 


Coin iiml bullion 


Domestic produce 


Coin and bullion 


for oousimiption. 


exported. 


oxportod. 


imported. 


$ 96,390,548 


$5,454,214 


$99,531,774 


S 5,830,429 


105,599,541 


8,600,495 


98,455,330 


4,070,242 


110,048,859 


3.905,268 


101,718,042 


3,777,732 


116,257,595 


1,907,024 


150,574,844 


24,129,289 


140,651,902 


15,841,616 


130,203,709 


6,300,224 


132,565,168 


5,404,648 


131,710,081 


6,651,240 



SUBSTITUTES FOR MONEY. 327 

amounting to 24 millions, the average for the other years being 
only 5 millions. The reason for this excess appears in the 
amount of domestic produce exported that year, which was 
150 millions, or at least 35 millions more than could have been 
anticipated from the natural rate of increase of our exports. 
This sudden enlargement of the exports was caused by the 
great amount of bread-stuffs, (68 milhons, or more than double 
the average quantity,) shipped from our ports that year, to 
make up for the famine in Ireland and the dearth throughout 
Western Europe. This large amount of coin and bullion re- 
ceived made our currency redundant, and we perceive that an 
effort was made the next year to get rid of the superfluous 
money. But no action of the government, no combination of 
individuals, was requisite for this purpose; the matter regu- 
lated itself. England had sent away a considerable portion of 
her currency, and therefore the prices of her commodities fell ; 
the United States had received what England had lost, and 
therefore prices in America rose. Thus it became profitable 
to purchase goods in England and sell them in the United 
States ; and thus our imports in 1848 suddenly rose to 140 
millions (an excess of 16 millions over the average of 1847 
and 1849) ; and, to pay for these goods, we exported nearly 16 
millions of coin and bullion, which restored the balance of the 
currency. A severe commercial crisis in England was the con- 
sequence of this drain of specie, in 1847, caused by the neces- 
sity of buying food, though the effect was probably somewhat 
aggravated by excessive investment in railways. But the mis- 
management of the banks, or an excessive circulation of bank- 
notes, was certainly not the cause of the evil, the act of Parlia- 
ment passed three years before being an insuperable obstacle 
to any extension of the paper currency. On the contrary, Mr. 
Tooke rightly argues, that a moderate increase of the amount 
of bank-notes in circulation might have obviated the calamity 
in part, or altogether, by filling up the vacuum in the currency 
created by the exportation of specie. 

When, in the course of international trade, one country be- 
comes indebted to another, the question whether the deficiency 
shall be made up by remittances of money or of goods, is one 
that determines itself, on the same principles which usually 
cause one commodity to be preferred to another as an article 



328 THE DISTRIBUTION OF GOLD AND SILVER: 

of export. The merchant will send the one which he thinks 
is less valuable at home, and more valuable abroad, than any 
other commodity. If coin and bullion answer this condition, 
— that is, if other commodities are dearer at home than 
abroad, — then coin and bullion will be sent. But, as Mr. 
McCulloch remarks, "though the premium on foreign bills 
should increase, so as to equal the cost of exporting the pre- 
cious metals, (for it cannot exceed this sum,) it does not by 
any means foUow that they would therefore be exported. That 
depends entirely on the fact, whether bullion be, at the time, 
the cheapest exportable commodity ; or, in other words, wheth- 
er a remittance of bullion be the most advantageous way in 
which a debt may be discharged. If a London merchant owe 
£ 100 in Paris, he sets about finding out the cheapest method 
of paying it. On the supposition that the real exchange is 
two per cent below par, and that the expense of remitting bul- 
lion, including the profit of the bullion merchant, is also two 
per cent, it will be indifferent to him whether he pay £ 2 of 
premium for a bill of £ 100 payable in Paris, or incur an ex- 
pense of £ 2 by remitting £ 100 worth of bullion directly to 
that city. If the prices of cloth in Paris and London be such, 
that it would require £ 103 to purchase and send as much cloth 
to Paris as would sell for £ 100, he would undoubtedly prefer 
buying a bill or exporting bullion. But if, by incurring an ex- 
pense of £ 101, the debtor be able to send as much hardware 
to Paris as would seU for £ 100, he would as certainly prefer 
paying his debt by an exportation of hardware. By doing so, 
he saves one per cent more than if he bought a foreign bill or 
remitted bullion, and two per cent more than if he exported 
cloth. It follows, then, that the balance of payments might 
be a hundred millions against a country, without depriving it 
of a single ounce of bullion. No merchant would remit £ 100 
worth of gold or silver from England to discharge a debt in 
Paris, if he could invest <£ 98, <£ 99, or any smaller sum, in 
any other species of merchandise which, exclusive of expenses, 
would sell in France for £ 100. Those who deal in the pre- 
cious metals are, we may depend upon it, as much under the 
influence of self-interest, as those who deal in coffee or indigo. 
But who would attempt to discharge a foreign debt by export- 
ing coffee which cost £ 100, if he could effect the same object 



SUBSTITUTES FOR MONEY. 329 

by sending abroad indigo which cost only <£ 97 ? No person 
in his senses would export a hat to be sold for 205., provided 
he could sell it at home for a guinea ; nor would any person 
export an ounce of bullion, if its value were not less in the ex- 
porting than in the importing country, or if there were any 
other commodity whatever that might be exported with greater 
advantage." 

Bills of exchange, or the transfer of debts, may take the place 
of money to an almost incalculable extent. The instances thus 
far adduced relate only to foreign bills of exchange, or the ad- 
justment of our trade with other countries. But domestic biUs 
of exchange are also drawn to vast amounts, to represent arid 
balance the items in our account current with the other States 
and cities of this Union ; they are not, indeed, always called 
by this name ; they generally appear under the form and ap- 
pellation of drafts and checks. But they aU amount to the 
same thing ; they are really bills of exchange, because they are 
written orders for the transfer or sale of debts. They are dis- 
tinguished from paper currency, properly so called, or bank- 
bills, by this single circumstance, — that a proper bill of ex- 
change, draft, or check must usually be indorsed by each party 
through whose hands it passes, and every person who indorses 
it incurs a modified responsibility for its payment ; while bank- 
bills, as we all know, pass from hand to hand without any 
indorsement. 

And this leads us at once to an explanation of the true 
nature of a bank-bill ; like a bill of exchange, it is simply evi- 
dence of a debt, which debt is transferred from hand to hand, 
or exchanged for merchandise. The bank which pays out one 
of its own bills, simply acknowledges that it is indebted for a 
specified amount to the person who receives it, or to any other 
person to whom he may transfer it; audit promises to pay 
this debt on demand in specie. If the politicians who, at vari- 
ous times, have given themselves so much trouble about the 
repression of the banks, and the establishment of an exclusively 
metalhc currency, had known how little difference there is be- 
tween bank-bills and the various forms of bills of exchange, the 
two really performing the same functions, they might have saved 
their labor. I hazard nothing by the assertion, that, if the cir- 
culation of bank-bills in this country should be entirely stopped 
28* 



330 THE DISTRIBUTION OF GOLD AND SILVER: 

by law, the number and value of these other evidences of debt 
— (less convenient, indeed, than bank-bills, because they re- 
quire indorsement) — ^vould be so largely increased, as to pre- 
vent the necessity of importing a much larger amount of specie. 
Already, in England, where the circulation of bank-bills of a 
lower denomination than five pounds sterling, or twenty-five 
dollars, is prohibited, numerously indorsed bills of exchange 
have come to circulate to an immense amount as currency. 
They are drawn to as small an amount as ten pounds sterling, 
are used by the country farmers in making their purchases of 
merchandise, and often come into the hands of the person in 
London by whom they are finally payable, with no less than 
forty indorsements upon them. The average amount of them 
in circulation at any one time was calculated by Mr. Leatham, 
an eminent banker, to be over 132 millions sterling, — say, 640 
millions of dollars. Imagine the loss of interest, and expen- 
siveness in other respects, of an attempt to replace this amount 
of what is virtually paper currency by silver and gold ! 

And it is a curious circumstance, that these domestic biUs of 
exchange are finally paid off, or cancelled, without occasioning 
the transfer of more than an insignificant fraction of money. 
They are made payable by some one of the numerous banking- 
houses in London, and when they approach maturity, they are 
paid into, or left to be collected by, some other banking-house. 
" But the convenience of business," says Mr. Mill, " has given 
birth to an arrangement which makes aU the banking-houses 
of the city of London, for certain purposes, virtually one 
establishment, . A banker does not send the checks and bills, 
which are paid into his banking-house, to the banks on which 
they are drawn, and demand money for them. There is a 
building called the Clearing- House, to which every city banker 
sends, each afternoon, all the checks and bills on other bankers 
which he has received during the day, and they are there ex- 
changed for the checks on him which have come into the 
hands of other bankers, the balances only being paid in money. 
By this contrivance, all the business transactions of the city of 
London during that day, and a vast amount besides of coun- 
try transactions, represented by bills which country bankers 
have drawn upon their London correspondents," — amounting 
in the daily aggregate nearly to fifteen millions of dollars, — 



SUBSTITUTES FOR MONEY. 331 

" are liquidated by payments of money not exceeding on the 
average one million." The process is so convenient, and saves 
the handling of so much money, that Clearing-Houses have 
recently been estabhshed in the cities of New York and Bos- 
ton, where the various banks effect their settlements with each 
other by exchanging bank-bills as well as checks, and paying 
off only the balances in cash. 

As the territory of the United States is very extensive, and 
different portions of it have their peculiar staple products, the 
deahngs of our merchants in drafts or domestic bills of ex- 
change are necessarily very heavy. The extent of the transac- 
tions in these bills must be proportioned to the number and 
value of the commodities which are interchanged. The South 
furnishes cotton, rice, sugar, and tobacco, for consumption at 
the North, and for export to foreign countries ; and she needs 
in return the manufactured goods of the North, and the foreign 
commodities which are imported chiefly into the Northern 
ports. The West sends to the Atlantic States her surplus 
product of bread-stuffs, beef, pork, hemp, and lead, and also re- 
ceives manufactured and foreign goods in exchange. It is 
easy to see, that this immense internal traffic takes place in 
great part without the intervention of money, whether in the 
form of coin or bank-bills. Drafts or domestic bills of ex- 
change are here the great instruments of commerce, or the cir- 
culating medium that facihtates the interchange of commod- 
ities. The farmer in Illinois or Michigan forwards by raikoad 
his wheat and Indian corn to a miller at Rochester or a mer- 
chant in New York, and draws upon him for the value of the 
consignment at current prices. This draft he transfers to his 
neighbor, a Western merchant, in payment for articles of 
household use and other commodities, with which he has been 
supplied throughout the year ; and the merchant, when he goes 
to New York to purchase a fresh stock of foreign and manu- 
factured goods, gives up this draft to pay for them. The 
whole series of transactions, representing all the complex inter- 
changes of commodities between the East and the West, 
might be completed without the intervention of a bank-bill or 
a piece of coin in any part of the business, except perhaps to 
" make change," or settle a small fractional part of an account. 
The business of the Southern planter is managed nearly in the 



332 THE DISTRIBUTION OF GOLD AND SILVER: 

same way : though the larger part of his produce is shipped to 
a foreign market, the transaction is settled for him by a draft 
on a merchant in New York or New Orleans ; and this draft, 
after its acceptance, can be directly used in the purchase of 
commodities. It usually commands a small premium, or is 
worth more than cash ; for the currency of the neighborhood, 
being supplied by local banks, is not available for purchases at 
a distance, and the transportation of specie is burdensome and 
expensive. A draft is really the safest and most convenient 
form of money ; for as it is indorsed over from one person to 
another, the danger of its value being lost or stolen is entirely 
obviated. In this commerce of the different States and other 
portions of the country with each other, as in international 
trade, commodities are really purchased with commodities, and 
the amount of sales must, in the long run, equal the amount 
of purchases ; otherwise, the course of exchange would turn 
against the State or district which bought more than it sold, 
and the deficiency would have to be ultimately made up by a 
remittance in specie, or by diminishing purchases and increas- 
ing sales. 

I have been compelled to anticipate to a considerable degree 
the explanation of the next substitute for metallic money in 
effecting exchanges and payments. I refer to the establish- 
ment of what are called banks of deposit, or to one branch of 
the business performed by the ordinary banks in this country, 
which have in truth three separate functions, — being banks of 
issue, discount, and deposit. Banks of deposit as first institut- 
ed, at Amsterdam, Hambm'g, and elsewhere, were places 
"where private merchants could lodge any amount of local 
national coin, of bullion, or of foreign coin reckoned by the 
bank as bullion ; and the amount so lodged was entered, ac- 
cording to its value, as so much money of the national stand- 
ard. At the same time, the bank opened an account with 
each merchant, giving him credit for the amount of his deposit. 
Whenever a merchant wanted to make a payment, there was 
no occasion to touch the deposit at all; it was sufficient to 
transfer the sum required from the credit of the party paying 
to that of the party receiving. Thus values could be trans- 
ferred continually by a mere transfer on the books of the bank. 
The whole operation was conducted without any actual trans- 



SUBSTITUTES FOR MONEY. 333 

fer of specie ; the original deposit, which was entered at its 
intrinsic value at the time of making it, remained as secu- 
rity for the credit transferred from one person to another; 
and the specie, so lodged with the bank, was exempt from 
any reduction of value by wear, fraud, or even legislative en- 
actment." 

It was presupposed by this arrangement, that aU the mer- 
chants of the city made their deposits and kept their accounts 
at one and the same institution ; and it answered, of course, 
only for their dealings with each other, and not with the mer- 
chants of other cities or of foreign lands. Banks instituted ex- 
clusively for this purpose have died out, I believe, even in the 
places where they originated. It has been found more conven- 
ient to combine this office with the other functions exercised 
by banks. It is performed by the bankers in London, who 
are associated into partnerships, from two to six individuals 
usually forming one house, and by aU the American banks. 
In England as in America, " it is chiefly in the retail transac- 
tions between dealers and consumers," says Mr. MiU, " and in 
the payment of wages, that money or bank-notes now pass, 
and then only when the amounts are small. Not only the 
merchants and larger dealers, but persons of fortune, and all 
shopkeepers of any amount of capital or extent of business, 
deposit their spare cash reserved for immediate use in a bank, 
and make aU payments, except very smaU ones, by checks. If 
all did business at one bank, as we have seen, no actual trans- 
fer of money would be necessary, but only a transfer of credit 
on the books. In London, the institution of the Clearing- 
House does virtually combine all the banks into one for this 
purpose, the checks being very seldom directly paid in money, 
and the accounts of the bankers with each other being adjusted 
once a day. In this country, tiU recently, the checks were di- 
rectly paid by the institution on which they were drawn ; but 
all checks to any considerable amount were paid in bills of a 
large denomination, with the expectation that these would not 
pass into general circulation, but would merely be carried a few 
steps in State Street or Wall Street, to another bank, where 
they would either be taken in payment of a note or be lodged on 
deposit ; often, indeed, they were not carried out of doors at all, 
but were only transferred from the paying to the receiving teller 



334 THE DISTRIBUTION OF GOLD AND SILVER. 

of the same institution. Such bank-bills form no part of the 
currency properly so called ; they are mere orders from one in- 
stitution to another for the transfer of credits. 

It wiU be observed that I have not, thus far, entered into 
any consideration of proper bank currency, viewed as a substi- 
tute for gold and silver coin ; that topic, from its extent and 
importance, must be reserved for another chapter. Yet we 
have seen that the largest operations of domestic and foreign 
trade are carried on with the intervention of very little money ; 
that the most important exchanges are effected without any 
transfer of the precious metals; and we have already abun- 
dant reason to beheve that, in these modern times, the proper 
sphere of money is in retail transactions, and in answering fre- 
quent petty demands. We thus gain a more correct idea of 
the comparatively limited functions of money, which common 
persons are led grossly to exaggerate, merely because, at any 
one time and place, it is a common measure of value, a univer- 
sal denomination of account. All wealth, all commodities, are 
estimated in dollars, francs, pounds sterling, and the like ; and 
it is by the aid of such estimates that aU exchanges are made. 
Thus, the idea of money aids us, when the reality is seldom 
employed. As pounds sterling were a universal denomination 
of account for a long period, during which there was no such 
coin as a pound sterling in existence, so the idea, or abstract 
conception, of numerical values expressed in coin would be a 
convenient, even an essential, implement or contrivance in 
mercantile transactions, though all exchanges should be made 
by direct barter of one commodity for another. Without such 
a contrivance, the merchant could not keep his books of rec- 
ord intelligibly, or preserve his accounts with individuals in 
his large and complicated business. Money is even now only 
a hypothetical or abstract medium of exchange in all the larger 
transactions of commerce. I almost anticipate the time, in the 
progress of invention and the discovery of new expedients and 
facilities in commerce, when it will become so universally ; 
when, at any rate, so costly and useless a realization of the 
idea as gold and silver coin will be entirely done away. Only 
practical difficulties, or what may be called difficulties of de- 
tail, even now obstruct this desirable consummation. 



BANKS AND BANK CURRENCY. 335 



CHAPTER XX. 

THE FUNCTIONS OF BANKS AND THE NATURE OF BANK-NOTES : 
THE OPERATIONS OF CREDIT. 

While treating of banks and bank currency, the subjects of 
the present chapter, I shall, in order to avoid confusion, refer 
only to the banking system established in this country, and 
especially here in New England ; at any rate, the references to 
the Bank of England and other foreign institutions will be 
only incidental, to elucidate the operations of our own banks. 
It has been said that our banks have properly three functions, 
or that they are banks of deposit, discount, and circulation. I 
have briefly explained the first of these three offices, — that 
of deposit, and have shown the benefits resulting from it. 
Through this function of the banks, dealers are released from 
the necessity of counting over large sums of money in order to 
make or receive payments, and from the risk of keeping such 
large sums by them in their own establishments, where they 
would be exposed to thieves, fire, and other casualties. They 
are enabled to make and receive large payments by mere slips 
of paper, which are only orders for the transfer of credit, on the 
books of the bank, from the account of one person to that of 
another. Their money, being useless to them except for the 
pm-pose of effecting these transfers of credit, is left undisturbed 
in the vaults of the banks ; and these institutions, being able 
to calculate the average amount thus left with them continu- 
ally, are enabled to use it over again, or to lend it to their cus- 
tomers ; for credits can be equally well transferred on the bank 
books, whether the money represented by these credits is actu- 
ally in the bank safe, or in the hands of a person to whom the 
bank chooses to lend it, and who may be regarded for this pur- 
pose as its agent or cash-keeper, — the bank, of course, being 
responsible for him, or engaging to repay the money, if he 
does not, 

I find, by the latest returns of all the banks in Massachusetts, 
that the sums thus deposited with them amount to little less 



336 



BANKS AND BANK CURRENCY. 



than twenty-two millions of dollars, and that the banks, in fact, 
let out every dollar of this sum to other persons, receiving in- 
terest therefor ; I say the banks let out all the deposits, because 
the specie actually held by these institutions in their vaults is 
more properly regarded as a security for their circulation than 
for their deposits. Observe, now, the ■ economizing effect of 
the banks in regard to the use of money. It appears that the 
merchants and other capitaUsts of this State, in order to be pre- 
pared for sudden calls and daily emergencies, find it necessary 
to keep sums of money by them or on hand, which amount in 
the aggregate to twenty-two millions of dollars. If there were 
no banks, this great sum of gold and silver, divided into many 
parcels, must remain, disused and rusting, (if the precious met- 
als did rust,) in safes, tills, and drawers. There would be a 
loss of profit or interest on the whole amount. Through the 
machinery of the banks, these many parcels are collected to- 
gether, and while their owners have just as much the benefit 
of them as ever, — that is, can effect all their payments equally 
well, and save the trouble of counting the money to boot, — 
the banks put all the money into profitable use, or convert it 
from dead into active capital. The saving thus effected to the 
State of Massachusetts, reckoning it only at the rate of legal in- 
terest, is six per cent on twenty-two millions, or 1 1,320,000 a 
year. In places where there are no banks, — in Valparaiso, 
South America, for instance, — there is more than one large 
mercantile firm which, on account of the extent of its transac- 
tions, is obliged to keep, on an average, at least $ 100,000 in 
gold coin constantly in its safe ; this is so much subtracted from 
its active capital, and the annual rate of profit there being a"^ 
least as high as ten per cent, the annual loss to such a houst 
equals ten thousand dollars. 

The discounting operations of the banks, which are their 
chief function in this country, lead directly to an explanation 
of the system of credit, — a system which plays so important a 
part in the theory of wealth, and in all mercantile transactions, 
that it needs to be very plainly and fully set forth. " The 
functions of credit have been a subject of as much misun^^ ^r- 
standing, and as much confusion of ideas, as any single t' ic 
in Political Economy. This is not owing to any peculipv df- 
ficulty in the theory of the subject, but to the complex nature 



BANKS AND BANK CURRENCY. 337 

of some of the mercantile phenomena arising from the forms 
in which credit clothes itself; by which attention is diverted 
from the properties of credit in general, to the peculiarities of 
its particular forms." 

Credit may be briefly defined as a means of putting capital 
into the hands of those who, for the time being, can use it to 
the best advantage, though they are not the owners of it. The 
utility and profits of capital depend, as we have seen, upon its 
activity, upon the speed, skill, and judgment with which it is 
consumed and reproduced. The capitalist himself may be de- 
ficient in all the important requisites for managing his own 
property ; he may have inherited it, and therefore have had no 
experience in the mode of acquiring and using it ; or from the 
very fact that he is a capitalist, or a man of fortune, he may 
not be willing to give time and labor to its superintendence, 
preferring to consult his own ease and amusement ; or his cap- 
ital may be so large, that, although in active business himself, 
he may not be able to superintend or manage the whole of it, 
but may feel obliged to lend a large portion of it. From these 
various circumstances, there is always, in every wealthy com- 
munity, a vast amount of capital to lend, — much more than 
is generally supposed. For capitalists, banks, and other lend- 
ing institutions are commonly thought to manage and superin- 
tend their own property, when they simply direct its invest- 
ment, or determine to what persons or institutions they will by 
preference lend it. But not so. The real manager of capital 
is he in whose hands it exists, not in the form of money, 
stocks, or other securities, but in the form of goods, — whether 
■ of raw material to be manufactured, or of tools and machinery 
• ' for manufacture, or of ships and other means of transport, or 
of merchandise for transport and sale. There may be half a 
dozen applications of credit, half a dozen lendings, between the 
proper owner and this manager of the capital. For instance, 
the owner may prefer to lend his capital to, or invest it in, a 
bank ; the bank may lend it to a broker ; the broker may em- 
ploy it in buying up a promissory note ; and the original giver 
^y^ promisor of this note is probably he in whose hands the 
(i /hial property represented by all these transactions is really 
P'f ^'sd, for the time being. He is the manager of the capital, 
whose true owner is not probably known to him even by name. 
29 



338 BANKS AND BANK CURRENCY. 

And here we must again remark, that the true subject of 
credit, that which is lent, and for which interest is paid, is not 
money, but merchandise, or some one of the myriad forms of 
material wealth. Money, as such, it has been demonstrated 
again and again, bears no profit, and therefore yields no inter- 
est. What the merchant or other needy person actually bor- 
rows, is not the little slip of paper, called a check.) that he carries 
to the bank ; nor yet the bank-bills which he receives in pay- 
ment of the check ; nor even the gold and silver coin, which, if 
he chooses, he can obtain for the bank-notes. The proof that 
these things are not what he really borrows for six months, a 
year, or some other period, is, that he endeavors to get rid of 
these things as soon as he can ; if possible, on the very day on 
which he received them. He no more thinks of keeping the 
bank-notes or coin on hand, than of retaining the check in his 
possession. What he really keeps for the six months or year, 
and therefore what he really borrows and pays interest for, is 
the goods which he purchases with the bank-bills. A capital- 
ist's property, though it may exist under his own eye only in 
the shape of notes, bank-bills, stocks, and other representatives 
of wealth, does not actually consist in them, but in merchan- 
dise, or articles of material wealth, which, in many cases, he 
has never seen; and these are what he lends upon interest. 
There is always a vast amount of such capital in being, which 
is not manag-ed by its proper owners. 

On the other hand, as Mr. Mill remarks, credit is " the means 
by which the industrial talent of the country is turned to most 
account for purposes of production. Many a person, who has 
either no capital of his own, or very little, but who has quahii- 
cations for business which are known and appreciated by some 
persons of capital, is enabled to obtain either advances in mon- 
ey, or more frequently goods on credit, by which his industrial 
capacities are made instrumental to the increase of the public 
wealth ; and this benefit will be reaped far more largely, when- 
ever, through better laws and better education, the community 
shall have made such progress in integrity, that personal char- 
acter can be accepted as a sufficient guaranty, not only against 
dishonestly appropriating, but against dishonestly risking, what 
belongs to another." Every act of legislation, which, however 
benevolent in design, reaUy diminishes the security of creditors, 



BANKS AND BANK CURRENCY. 339 

is an act inflicting hardship and wrong on the very class of 
persons whom it is intended to benefit, — the class who have 
not so much capital as capacity to use it, and who must, there- 
fore, depend on credit as the only means of turning their tal- 
ents to account. 

Another occasion for giving credit arises from the varying 
demands for capital in different employments. One who has 
capital enough for the average demands of his business may 
find, owing to the fluctuations of trade, that, at one period, 
half of his whole capital would remain useless for some 
months, if he could not, during that time, lend it to another ; 
and at another period, that the productiveness of his own stock 
would be greatly enhanced if he could increase it by one half 
for a few months. In other words, in order that his business 
may be most profitably and most economically managed, he 
must have the power of varying the amount of capital engaged 
in it from one month to another. 

Now, it is the chief function of banks in this country to pro- 
mote and facilitate these operations of credit, and thereby to 
economize both the capital and the industrial talent of the na- 
tion, allowing no portion of either to remain unemployed even 
for a few weeks. They bring borrowers and lenders together ; 
they allow an individual to borrow this month and to lend the 
next, — nay, to borrow to-day and to lend to-morrow, according 
to his varying occasions, necessities, and inclinations. They 
do not, in this part of their office, directly add to the productive 
wealth of the country ; but they keep what there is in the high- 
est possible activity, and cause it to be applied constantly to 
the best advantage. Credit, however enlarged, cannot increase 
capital, cannot create wealth, whether productive or unproduc- 
tive. It can only transfer from one hand to another the wealth 
already in being. " Credit has a great, but not, as many peo- 
ple seem to suppose, a magical power; it cannot make some- 
thing out of nothing. If the borrower's means of production 
and of employing labor are increased by the credit given him, 
the lender's are as much diminished. It is true that the capi- 
tal which A has borrowed from B, and makes use of in his 
business, still forms part of the wealth of B for other purposes ; 
he can enter into engagements in reliance on it, and can even 
borrow, when needful, an equivalent sum on the security of it ; 



340 BANKS AND BANK CURRENCY. 

SO that, to a superficial eye, it might seem as if both B and A 
had the use of it at once. But the smallest consideration will 
show, that, when B has parted with his capital to A, the use 
of it as capital rests with A alone, and that B has no other ser- 
vice from it than in so far as his ultimate claim upon it serves 
him to obtain the use of another capital from a third person, C. 
All capital, (not his own,) of which any person has really the 
use, is, and must be, so much subtracted from the capital of 
some one else." * 

We are now prepared to explain the nature and functions of 
a bank ; and I will take, for this purpose, one of the simplest 
cases, — a bank established in one of our New England coun- 
try towns, with a capital of not more than $ 100,000. We 
will suppose that this town, originally without any institution 
of the kind, has gone on increasing in population, manufac- 
tures, wealth, and trade. There are now a number of persons 
in it, of easy circumstances, who still make savings from in- 
come, but have not the inclination, or perhaps the capacity, to 
employ these savings profitably in any active business. These 
have capital to lend ; and there are others in the town, young 
tradesmen and manufacturers, who have not capital enough to 
give full scope to their industry, talents, and enterprise, and 
who are therefore eager to borrow. But the borrower may 
often have much difficulty in finding a lender who has to spare 
just the sum that he wants, and for the time that he wants it ; 
and even the lender may often have a portion of his spare cap- 
ital lying idle for weeks, and even months, before he can find 
borrowers who will take it all on good security, and pay inter- 
est for it at short periods. Still further, the traders in the town, 
as we have seen, may have frequent occasion both to lend and 
to borrow, according to the varying demands of their business. 
When their stock is low, they may have a considerable sum 
on hand or unemployed, which they would be glad to let out 
at interest if they could be sure of obtaining it again as soon 
as needed, or whenever a favorable opportunity offered for pur- 
chasing an additional stock of goods. But it would be diffi- 
cult, if not impossible, to find a borrower who would take it 
upon these terms ; for interest can be paid only out of profits. 



* J. S. Mill's Political Economy, Vol. II. p. 36. 



BANKS AND BANK CURRENCY. 



341 



and capital cannot be put to a profitable use ^vithout engaging 
it in some occupation from which it could not be withdrawn 
at a moment's notice. The traders, however, would be wilUng 
to lend«their surplus capital for a fixed period, say three or six 
months, if there were some institution in the town from which 
they could be sure of obtaining a loan to an equivalent or 
greater amount, if any occasion should arise for the use of the 
funds before the period of three or six months had elapsed. 

It will be for the convenience of all parties, then, to have a 
central office in town, where all can come who wish to borrow, 
and whither all capital may be carried which craves invest- 
ment in this form. The lenders and traders, therefore, obtain 
', a charter of incorporation as a bank, as they find that, by club- 
bing their means, they can raise a capital of $ 100,000. They 
are willing to put all the capital they can possibly spare into 
such an institution, because, their stock in the bank being 
transferable, they can readily borrow money elsewhere, or at 
the bank itself, by offering this stock as security, or they can 
sell the stock if they desne to regain their whole capital. Hav- 
ing procured a banking-room, and a competent person as cash- 
ier, they can commence operations by lending every dollar of 
their capital, which was paid in only for the purpose of being 
lent. They gain a trifling advantage, also, by letting their 
capital only for short periods, from two to six months ; thus 
obtaining compound interest a part of the time, the money 
received for interest being often let out as well as the capital, 
before the time arrives for the semiannual payments to their 
stockholders. 

This small gain, however, would not by any means defray 
their expenses for banking-room, cashier, &c. ; and if the bank 
had no other source of revenue, it could not divide six per cent 
a year to its stockholders ; for it only receives a trifle over six 
per cent on the capital, and the banking expenses must be de- 
ducted. But, for reasons already explained, all persons in 
town, having cash on hand for their daily emergencies, are 
ready and eager to deposit this cash in bank, the institution 
undertaking to keep it safely, and with it to manage all their 
payments for them, and to retm-n it on demand. Such depos- 
its, therefore, though always coming and going, may amount 
on an average to $ 25,000, or one fourth of the bank capital. 
29* 



342 BANKS AND BANK CURRENCY. 

The bank pays no interest on this sum, but receives interest 
for it ; for it is able to let out the whole, only taking care to let 
it for short periods, so that it may be within reach, as it were, 
if suddenly called for. Thus far, then, the bank, with only 
$ 100,000 of capital, receives interest on $ 125,000, and is thus 
in a fair way to pay its expenses, and still yield six per cent to 
its stockholders. It should be observed, that the whole amount 
of its deposits cannot be suddenly called for, nor even a con- 
siderable portion of them. These deposits consist in great part 
of the funds which the various customers of the bank are con- 
stantly transferring from one to another, in the settlement of 
their accounts with each other ; and these transfers are made 
upon the bank-books, as already explained, without any neces- 
sity of ever withdrawing the sum from the custody of the in- 
stitution. 

The usual mode in which banks lend their capital and other 
funds to their customers is, by discounting promissory notes. 
We shall, therefore, gain a clearer view of their second func- 
tion, as banks of discount, by looking closely into the origin 
and character of such notes. It is usual in every trade to give 
a certain length of credit for goods bought, — six or eight 
months, or even a year, according to the custom in the partic- 
ular trade. This length of credit is virtually offered to the 
purchaser as an inducement to him to pay a higher price for 
the goods bought ; he is offered either six months' credit, or a 
discount of five per cent from the price demanded, though the 
usual rate of interest for six months is but three per cent ; and 
in nine cases out of ten, the purchaser decides to take the 
credit rather than the diminished price. The seller offers this 
credit, though he is in truth not able to offer it, but needs his 
capital returned immediately. He offers it, however, because 
he knows he can sell this note to the bank, or transfer the debt 
to it, receiving the amount mirms the interest for the time it 
has still to run. It might seem to be a less circuitous and less 
costly mode of transacting the business, if the purchaser of the 
goods, instead of paying five per cent for six months' credit, 
should himself obtain a loan from the bank of the necessary 
sum at only three per cent, and thus be enabled to pay for his 
goods with ready money. But then the bank, for its own 
security, requires two persons to become responsible for the 



BANKS AND BANK CURRENCY. 343 

repayment of the loan, these two usually being the signer and 
an indorser of the note. The buyer can only offer his own 
personal security, which is not enough ; the seller can offer a 
note signed by the buyer, and indorsed by himself, so as to 
complete the requisite guaranty. The real nature of the trans- 
action, then, is as follows : the seller, in order to enable a 
customer to buy his goods, obtains for him from the bank a 
six months' loan of the purchase-money, charging him two per 
cent for this service and for guaranteeing the repayment to 
the bank. ' 

It is the chief function of the banks to discount or buy such 
notes, which are called real or business paper, to distinguish 
them from another class of notes, which are denominated ficLi- 
tious or accommodation paper, because they are not grounded 
on any debt previously due from the promisor to the indorser. 
« Real notes (it is sometimes said) represent actual property. 
There are actual goods in existence, which are the counterpart 
to every real note. Notes which are not drawn in consequence 
of a sale of goods, are a species of false wealth, by which a 
nation is deceived. These supply only an imaginary capital ; 
the others indicate one that is real." * 

But there are no good grounds for this distinction and pref- 
erence. A loan obtained by a purchaser, on a note indorsed 
by a friend, may be applied to the purchase of goods, just as 
much as if the note were indorsed by the person who sold 
those goods. Then there may be actual commodities or values 
corresponding to the accommodation or fictitious paper, as well 
as to real notes ; the wealth is no more fictitious, nor are the 
pretences on which the loan is obtained more unfounded or 
fraudulent, in the one case than in the other. Again, though 
all the notes should be given as the results of actual sales of 
commodities, it is by no means certain that these commodities 
are equal in value to the whole (aggregate) amount for which 
the notes are given ; for the same goods may be sold over and 
over again by successive purchasers, so that there may be many 
notes, each representing the whole value of one and the same 
parcel of goods. For instance, A may sell 1 1,000 worth of 
merchandise to B, and receive therefor B's note at six months ; 



H. Thornton's Inquiry into the Nature and Effects of Paper Credit. 



344 



BANKS AND BANK CURRENCY. 



within a week, B may sell the same goods to C, and receive 
his note for the same sum ; C may soon dispose of them in 
like manner, and receive a third note. Before six months have 
elapsed, there may be a dozen such notes in being, all of which 
may possibly be discounted at the same bank ; yet only one of 
them represents any actual property. 

Up to this point, be it observed, there has been no mention 
of bank-notes, or of the issue of a substitute for specie curren- 
cy. The bank might exist, might exercise the two functions 
now explained of deposit and discount, and pay dividends of 
a reasonable amount to its stockholders, though the currency 
of a country should consist exclusively of gold and silver. The 
establishment of the bank would lessen the amount of these 
two metals required for making exchanges, — would limit them 
in great part to the retail trade, or to transactions between 
dealers and consumers, — the business of dealers with each 
other being adjusted almost exclusively by checks ti'ansferring 
deposits. But it now becomes a question whether the precious 
metals may not be dispensed with, even for this service. They 
are used only to be passed from hand to hand ; their material 
and specific qualities — their hardness, weight, &c. — are not 
needed to fit them for such transfer. A scrap of paper would 
answer just as well to be passed about, provided only that the 
receiver of it felt secure that it would not diminish in value 
while in his keeping, or that his neighbor would always be 
willing to receive it on the same valuation upon which it had 
come into his own hands. Instead of effecting a purchase 
with five hard and weighty silver dollars, it would be even 
more convenient to effect it with a scrap of paper, which the 
holder is sure of being able to exchange at any moment, and 
without difficulty, for that sum in specie. The bank, having 
relieved the large dealers from the necessity of using specie 
through its system of checks and deposits, may now relieve the 
smaller ones, and the community generally, from such neces- 
sity, by issuing its own notes for small sums, payable on de- 
mand in gold or silver at its own counter. In its immediate 
vicinity, such notes would evidently be preferred to coin, on 
account of their superior convenience ; beyond that vicinity, 
they would not circulate, because the distance would oppose 
an obstacle to their immediate conversion into cash, and be- 



BANKS AND BANK CURRENCY. 345 

cause the circumstances and solvency of the bank could not be 
so well known at a distance. 

To return to the bank with $ 100,000 of capital, which was 
taken as an example to illustrate the theory of these institu- 
tions ; we have seen that its capital and deposits combined 
would enable it to make loans on interest to the amount of 
^ 125,000. If we suppose that it can raise its circulation to 
$ 50,000 by keeping only 10,000 specie dollars in reserve, it 
is evident that $ 40,000 will be added to its productive means ; 
or that it will now be able to lend on interest ^ 165,000. It 
can then easily pay its banking expenses, pay 6 or 7 per cent 
on its capital to the stockholders, and still have a small surplus 
to meet the contingency of some loans made by it not being 
repaid, — or, in other words, to make up for bad debts. Hoio 
this excess of circulation over the specie held in reserve is so 
much added to its productive means, appears very easily on a 
little reflection. After it has lent out all its capital and all its 
deposits, it can still lend its own notes, or its own promises to 
pay specie on demand, which will circulate as readily as hard 
money, and for which, therefore, the borrower will pay as much 
interest as for hard money. 

Under ordinary circumstances, it is certain that one dollar 
in specie held by the banks is a safe basis for the circulation of 
three or four dollars in paper ; for paper being equally avail- 
able with specie for all domestic purposes, and far more con- 
venient, it would be strange indeed, if the inhabitants of any 
town or the people of any country should suddenly have occa- 
sion to send abroad, or out of their own precincts, a sum in 
specie equal to one third or one fourth of their whole paper cir- 
culation. Such an export from the United States would 
amount perhaps to sixty or seventy millions in specie, — a 
drain upon the currency quite sufficient to so far raise the 
value of what money remained behind, that the prices of all 
commodities would inevitably fall much below the average, 
and there would consequently be an irresistible temptation to 
export merchandise and import bullion. 

But the great danger to the circulation of the banks arises, 
not from the possibility of a sudden demand for a great amount 
of specie to be sent abroad, but from the occurrence of one of 
those panics among the people, which are not infrequently 



346 BANKS AND BANK CURRENCY. 

caused by commercial crises, or by the failure of one or more 
large banks through the gross mismanagement or fraud of their 
directors, — a failure which, among the ill-informed, of course 
excites suspicions as to the soundness of all the other banks. 
Against such panics, in truth, there is no adequate protection,, 
except the diffusion among the people of a knowledge of the 
theory and practice of banking, — a knowledge which would 
teach them that, by yielding to the excitement, and joining in 
the run upon the banks, they are acting directly against their 
own interests, which are not otherwise in jeopardy. An anec- 
dote is told of an eccentric banker, who, when a great crowd 
had collected about his doors, in consequence of one of these 
unreasoning excitements, came out and pushed them away 
with great violence of gesticulation, exclaiming, " Go away, 
you foolish people ! or I will break, and ruin every man among 
you." He was quite right; in every bank that is managed, 
I wiU not say, with common abiUty and discretion, but with 
common honesty, the capital and other resources so largely ex- 
ceed the circulation, that it is impossible for the notes to fail 
of being ultimately redeemed in specie. In the case of the 
bank which has been taken as an example, the assets are, the 
notes and bills of individuals, which it has bought or dis- 
counted to the amount of $ 165,000, and $ 10,000 in specie, 
making an aggregate of % 175,000, as a fund for the redemp- 
tion of only $ 50,000 in its own paper. If less than one fourth 
of these notes of individuals are duly paid at maturity, the 
bank-notes cannot fail to be redeemed in full ; and without a 
breach of honesty, it is certainly impossible that the directors of 
any institution should let out their own money and that of 
others in such a manner as to lose more than four fifths of it. 
But a great panic may bring home upon the bank more than 
one fourth of its circulation in one day, each holder of its notes 
being anxious to secure himself, and careless of the effect upon 
others. In this case, the bank would be obliged to suspend 
specie payments, its notes would be dishonored and conse- 
quently depreciated, merchants would be deprived of their de- 
posits and customary facilities at the banks, in consequence of 
which they also would fail to redeem their own notes due to 
the bank, and a general sacrifice or destruction of property 
would ensue. 



BANKS AND BANK CURRENCY. 347 

There is one rule for the proper management of a bank, by 
which the danger of such a catastrophe is very much lessened ; 
I refer to the rule for not discounting any but what is called 
" short paper," or not buying any notes which have more than 
a few months to run. If the bank lends all its available means 
for a period as long as six months, the receipts and loans being 
pretty equally distributed through all the business days of those 
months, it is evident that the daily receipts from loans repaid 
would be equal to the whole amount lent divided by the whole 
number of days for which it was lent ; that is, in the case of 
the bank we have taken for an example, $ 165,000 -f- 180, or 
about I 916, for the daily receipts. If two months were the 
limit fixed, then the whole capital would be turned over, or paid 
in and let out again, once in every sixty days ; and the daily re- 
ceipts would be about $ 2,748. If, on the other hand, a year 
was the limit, the receipts each day would be only $458. 
Now, if we suppose that a run takes place upon such a bank, 
it would probably take two days to exhaust its stock of specie, 
$ 10,000, which was held in reserve. During the continuance 
of the run, the bank's daily receipts would also continue, but 
it would make no new loans ; all the cash paid in would be 
held in reserve for the great emergency that had arisen. If it 
had adopted the two months' limit, the receipts during the two 
days' run would exceed $ 5,000 ; it would thus be prepared for 
a third day, and probably for a fourth, as the amount of its 
own notes brought in each day would rapidly diminish after 
three days' run. The bank would weather the storm. But if 
a year were the limit it had adopted, the receipts during the 
first two days would be only $ 916, — not enough to carry it 
through the third day. The bank must stop payment. "We 
see an obvious reason, then, why the banks feel obliged to cur- 
tail their issues or discounts during the existence of a panic, 
though .by so doing they increase the distress of the commu- 
nity. The bolder policy sometimes adopted, of increasing 
rather than diminishing the discounts at such a crisis, in order 
to lessen the distress, and thereby stop the panic, resembles the 
plan of crowding aU sail on a ship in a storm, in the hope 
thereby of keeping off a lee-shore, though the increased strain 
thus put upon the vessel may leave her a dismasted hulk on 
the waters. 




Yo^: 



348 BANKS AND BANK CURRENCY. 

In order still further to provide for its own safety, a bank 
ought not to make very large loans to individuals, but should 
have the whole amount of its disposable funds divided into 
loans of moderate size to a considerable number of persons, 
and so distributed that the payments or receipts may be equal- 
ized throughout the year. Otherwise, it is obvious that the 
failure of one large debtor might seriously cripple the resources 
and shake the credit of the institution ; or a run might be 
made upon it at a period when very few notes were becoming 
due, so that the receipts would not be adequate to make good 
the drain of specie. Simple as these rules may appear, it is 
upon the strict observance of them, almost as much as upon 
the caution exercised in making discounts only to solvent and 
responsible traders, that the security of the bank in times of 
emergency, or during a commercial crisis, will be found to de- 
pend. On occasions of this sort, private banks in England, 
and even the Bank of England itself, have been obliged to 
scrape together as many sixpences as could be found, in order 
to gain time by the delay inseparable from payment in such 
diminutive coin, until a part of the notes in its possession had 
fallen due. 

The proper function of a bank is to supply funds for use 
only as Circulating Capital, the process of production being 
comparatively a short one, and the value of the completed prod- 
uct soon serving to replace the advances whicli were neces- 
sary for wages, raw material, &c., while the work was going 
on. Thus it can lend to a farmer in the spring enough to buy 
seed-corn and to pay the wages of his laborers, and the pro- 
ceeds of his crop at harvest-time will serve to repay the loan. 
It can lend a retail-dealer enough to purchase an additional 
stock of goods, if there is a reasonable prospect that the goods 
will be sold, and the money be received for them, in season to 
meet the payment of the note which has been discounted. 
But the bank cannot safely aid agi'icultural, commercial, or 
manufacturing enterprise, by supplying funds for the construc- 
tion of ships and machinery, for the digging of mines or ca- 
nals, for the bringing of waste lands into cultivation, or for any 
long-winded speculation ; in short, it cannot supply funds to 
be employed as Fixed Capital. The values invested in any 
of these forms can be but slowly replaced, or only after consid- 



BANKS AND BANK CURRENCY. 349 

erable intervals of time ; the ship or the machine which will 
last twenty years before it is worn out, can pay for itself only 
out of the accumulated profits of nearly twenty years. The 
builder, indeed, may safely obtain a bank loan to enable him 
to finish his work, if it is his intention to sell the ship or the 
machine as soon as it is completed. In such case, he needs 
the funds for use only as Circulating Capital ; it is the purchas- 
er, or the person who intends to employ the ship or machine, 
who really needs the use of funds as Fixed Capital. Money 
lent for such purposes can be repaid, when due, only by other 
notes, which have a further term to run, and are negotiated 
with the deduction of discount. When these fall due, they 
are met by a third set payable at a still later date, and dis- 
counted in like manner. The operation is only an expedient 
for borrowing of the bank in perpetuity, or for an indefinite 
series of years. 

Land-banks, as they are properly termed, have been insti- 
tuted at various times in England, France, and even in some 
of the States of this Union, on the principle of lending capital 
upon the security of real estate, in order to make improve- 
ments upon the property. In such cases, the security, indeed, 
is unexceptionable ; but if the bank currency thus issued is 
returned to the institution to be redeemed in specie, there will 
be only mortgages to be offered for it, and the bank will be 
obfiged to refuse payment. Consequently, the history of such 
banks has been uniformly disastrous. As a general rule, the 
currency will not absorb bank issues, or prevent them from be- 
ing soon returned for redemption in specie, if those issues have 
not furnished a means for the immediate creation of fresh val- 
ues, the proper circulation of which requires an additional 
amount of money. If bank-bills amounting to one million of 
dollars, for instance, are lent to supply the manufacturers with 
Circulating Capital, additional manufactured goods will be 
brought into market, in the course of a few months, to the 
value, probably, of $ 1,200,000, allowing 20 per cent for profit; 
and the numerous exchanges occasioned by this quantity of 
merchandise will require additional currency, not amounting, 
it is true, to one million of dollars, the original amount of the 
loan, but still sufficing to keep back a considerable portion of 
the bills from being presented for redemption at the bank 
30 



350 BANKS AND BANK CURRENCY. 

counter. On the other hand, if the same amount of bills 
should be lent to furnish the manufacturers with Fixed Capi- 
tal, the additional goods brought to market in the course of 
the next year might not exceed $ 150,000, and but a small 
portion of the bills would therefore be absorbed into the cur- 
rency. 

If the paper issues of the banks at any time exceed the de- 
mands of circulation, there follows a perpetual reflux of the 
bank-bills, which will soon drain the specie reserves, and can 
be checked only by a limitation of the issues. It is not neces- 
sary that the bills should be actually presented at the counter 
with a demand for their redemption in coin. They may also 
be returned by the customers of the banks, who make deposits 
with them, or return them in payment for their notes which 
have been discounted and have fallen due. For illustration, 
we may go back to the case of the supposed bank, with 
$ 100,000 of capital, $ 25,000 of deposits, and $ 50,000 of cir- 
culation. We may suppose the daily receipts at such an 
institution to amount to $ 6,000, one half of this sum being 
lodged on deposit, and the remainder being received in pay- 
ment of the advances which it has made, or the notes which 
it has discounted. If its circulation be excessive, the state of 
the money-market not requiring so large an amount of its biUs, 
the greater part of this daily receipt, say $ 5,000, may be in its 
own bills, and only $ 1,000 in specie and in the bUls of other 
banks. It will then have only $ 1,000 to meet the demands 
upon it the next day, and cannot safely make any additional 
loan ; for a further amount of its own bills has meanwhile 
been paid into other banks, either on deposit or in the dis- 
charge of loans, and in its settlement with these banks, these 
bills must be redeemed, either by the payment of specie, or by 
the retm*n of bills which they have issued. If, on the other 
hand, the circulation be not already glutted with its own 
issues, five sixths of the daily receipts may be in specie or the 
bills of other banks, and only one sixth in its own paper ; then, 
a small sum being reserved for exchange of bills with other 
banks, the institution may not only lend over $ 4,000 out of 
the former day's receipt, but may safely make an additional 
loan, say $ 2,000, in its own notes. 

It is only in a period of excitement, during a commercial 



BANKS AND BANK CURRENCY. 351 

crisis, or an alarm for the solvency of one bank or of all the 
banks, that its notes are directly brought to its counter for re- 
demption in coin. In ordinary times, the real limit upon the 
circulation of any one bank is found in the daily settlement of 
its accounts with other banks. In the Clearing-Houses re- 
cently established by the banks both in New York and Bos- 
ton, every bank each day presents all the bills of the other 
banks which it has collected in the day's transactions, and 
offsets with them its own bills which have been paid into those 
banks ; only the balance, which is comparatively a small sum, 
is settled by the transfer of specie. Any redundancy of its 
own issues is sure to be followed by the presentation at the 
Clearing- House of a larger amount of its own bills than it has 
bills of other banks wherewith to redeem them, and the conse- 
quent necessity of paying the difference in gold or silver coin. 
Checks drawn upon it against deposits must be met in the 
same way. When a bank discounts the note of an individual, 
it does not necessarily pay out its own notes. The borrower 
may only desire the amount to be placed to his credit on de- 
posit. But the next day, perhaps, he has to redeem or pay off 
another note, discounted some months before at another bank. 
He pays this last note by a check on the bank from which he 
has just obtained a discount ; and this bank must account for 
the amount of the check in its account current with the other 
bank, or at the Clearing- House, — must perhaps pay specie for 
it. Hence we perceive the necessity to which the banks are 
subjected, in times of alarm and of the depression of credit, of 
contracting their loans and discounts in order to diminish the 
amount of their bills in circulation. It is not an arbitrary re- 
striction ; if they did not diminish their loans, their bills would 
be returned to them so rapidly as to exhaust their specie re- 
serves. 

Through these necessary dealings of the banks with each 
other, they become the guardians of each other's solvency, and 
are connected together by the closest ties of mutual depend- 
ence and guaranty. The question which was formerly much 
debated in this country, whether the banking business of the 
community would be more safely transacted by one great na- 
tional bank, resembling the Bank of England or the Bank of 
France, or by numerous small banks of comparatively private 



352 BANKS AND BANK CURRENCY. 

character and limited resources, as in the present American 
system, is one of no substantive importance. As our small 
banks necessarily deal with each other, by receiving each oth- 
er's bills and settling their mutual accounts every day, they 
are virtually bound together into one institution ; if the issues 
of any one of their number become excessive, the others are 
the first to perceive it, and are the first losers by its insolvency. 
This remark applies to them, however, only in their single 
function, as banks of circulation ; their other two functions, of 
receiving deposits and making discounts, may be, and often 
are, exercised by private merchants and capitalists, just as well 
as by the banks themselves. And these two functions consti- 
tute far the larger part of the banking business. In those 
States of our Union where, as in South Carolina and Mis- 
souri, there is but one State bank, which monopolizes the issue 
of bank-bills, there are numerous private bankers, as they are 
termed, who perform the greater part of the banking and ex- 
change business. These bankers are under very few legal 
restrictions ; their business is just as open to the community 
as any other branch of commerce. The office of issuing bank- 
bills, which are to become a part of the currency of the coun- 
try, is certainly a more delicate and important one ; but it is 
not easy to see that it would be more safely performed by one 
institution, than by many. If the transactions of one great 
bank are more publicly known and closely scrutinized, and if 
it can be managed by a few persons of high reputation for 
probity, wealth, and intelligence, so the consequences of its 
failure would be more general and more disastrous. It would 
not be watched by any rival institution deeply interested in 
an early detection of its insolvency. Massachusetts has 169 
banks, with an aggregate capital of over 58 millions, and an 
aggregate circulation of less than 23 millions. If all this busi- 
ness were concentrated in the hands of one institution, even 
the rumor that it was in danger would create a panic that 
would paralyze the business of the whole State, and its actual 
failure would occasion almost universal bankruptcy. But 
under the present system, the unsoundness of one bank is 
quickly detected, and the rotten member is easily lopped ofT 
without shaking public confidence, or doing more than slight 
injury to very few individuals. The average circulation of a 



BANKS AND BANK CURRENCY. 353 

Massachusetts bank is but little over $ 135,000, and that of 
the largest banks does not equal half a million. There are 
many private merchants whose liabilities greatly exceed this 
amount, and whose failure would be a more serious shock to 
public credit. And the cases of insolvency are proportionally 
more numerous among the merchants than among the banks ; 
of the latter, there have not been more than half a dozen fail- 
ures during the last fifteen years. 

Nothing can be more erroneous than the common opinion 
that the banks are able to increase their loans, and augment 
their circulation, at pleasure, or according to their own ideas 
of what is safe and expedient. There are no other funds from 
which loans can be made but (1.) the capital, (2.) the aver- 
age amount of the deposits, and (3.) the excess of the circula- 
tion over the specie reserve. The first of these is a fixed 
quantity, determined by the charter and the nature of the case. 
The amount of the second depends upon the number of the 
customers of the bank, and upon the nature and extent of their 
business ; the deposits are made up by those who need to have 
money at hand, or within call, as it were, but have no imme- 
diate occasion to use it, and though their deposits are continu- 
ally being withdrawn and replaced, or transferred from one 
person's credit to another's, their average amount is nearly a 
fixed quantity, and, after a little experience, can be easily de- 
termined. The third fund, though generally supposed to be 
variable, is in truth as much a fixed quantity as either of the 
others. We have seen that a reflux of the bank issues is 
always steadily going on, not through their presentation for 
specie, but through the receipts in deposit and in payment of 
the loans and discounts which have come to maturity. The 
bank can do nothing to lessen or retard this reflux, except by 
diminishing the issue of the bills. If it should suddenly and 
incautiously enlarge its issues to-day, there would be an equiv- 
alent augmentation of the reflux to-morrow ; for as the com- 
munity was previously suppHed with currency enough for its 
usual exchanges, the additional amount of money thus thrown 
into the market must come into the hands of persons who 
would have no immediate occasion to use it, but would lodge 
it on deposit in the banks, and it would thus be immediately 
returned to the source whence it came. 
30* 



354 



BANKS AND BANK CURRENCY, 



Experience as well as theory confirms this statement. The 
doctrine which " denies to banks any power of increasing their 
circulation except as a consequence of, and in proportion to, 
an increase of the business to be done," is supported, says Mr. 
J. S. Mill, " by the unanimous assurances of all the country 
bankers who have been examined before successive Parliamen- 
tary committees on the subject. They all bear testimony 
that, in the words of Mr. Fullarton, ' the amount of their issues 
is exclusively regulated by the extent of local dealings and ex- 
penditure in their respective districts, fluctuating with the fluc- 
tuations of production and price ; and that they neither can 
increase their issues beyond the limits which the range of such 
dealings and expenditure prescribes, without the certainty of 
having their notes immediately returned to them, nor dimin- 
ish them, but at an almost equal certainty of the vacancy being 
filled up from some other source.' " Thus Mr. Anderson, man- 
ager of the Glasgow Union Banking Company, when asked 
by a Parliamentary committee, if the extraordinary advances 
made by the banks in a season of pressure did not increase the 
circulation of the country generally, answered, " Those notes 
which we pay out, do not remain out ; they must be paid back, 
either to us or to some other bank, in the shape of deposits, 
till they are to be used, and they do not increase the perma- 
nent circulation of the country unless for a day or two, scarcely 
even for a day." As a bank cannot issue its own bills to any 
great extent without making additional loans and discounts, it 
cannot take advantage of the fact that the bills must remain 
out at least a day or two, before they find their way back ; for 
if they were returned even on the third or fourth day, the bank 
would have nothing wherewith to redeem them except the 
notes which it had just discounted, and which have still from 
two to six months to run. 

Accidental circumstances, indeed, sometimes enable a bank 
to pay out a considerable amount in its own bills, taking in 
return, not notes or drafts which will mature some months 
hence, but securities that are immediately convertible ; a bank, 
for instance, is sometimes requested to furnish small bills, of 
the denomination of $ 10 and under, in exchange for a single 
$ 1,000 note of another bank. These bills of a low denomina- 
tion, being needed to effect small payments, pass almost imme- 



BANKS AND BANK CURRENCY. 355 

diately into the hands of retail dealers, who are consequently 
enabled to collect and deposit an equivalent amount, either in 
these very bills or in others of the same tenor. These dealers 
may deposit in several different banks, and the result will be, 
that a portion of the bills will be immediately returned to the 
bank which issued them, while the remaining portion will drive 
out of circulation, or force back upon their issuers, an equiva- 
lent sum in the bills of other banks. The operation will in- 
crease to some extent the circulation of one bank at the 
expense of the others ; it will not augment the general circula- 
tion of the country. 

The doctrine which I have endeavored to establish, may be 
summed up in the two following propositions. 

1. The currency of any commercial nation, whether it con- 
sists exclusively of specie, or of a mixture of specie with bank- 
bills redeemable in specie on demand, is a fixed quantity, 
determined by the extent of the trade and the population, and 
by the perfection of the financial arrangements of commerce, 
as compared with the trade, population, and financial arrange- 
ments of all other commercial nations ; the necessary equaliza- 
tion of the prices of all commodities in different countries, 
through the operations of international trade, is at once the 
result and the proof of this equal distribution of the total cur- 
rency of the commercial world among all commercial nations, 
in exact proportion to the wants and circumstances of each. 
In the same manner, and under the operation of the same 
laws, prices are equalized through the various cities and towns 
of any one nation, and each city and town is consequently 
supplied with its due proportional share of the total currency 
of that country. This distribution of money is a self-adjusting 
process, not requiring any interference of legislation, or any 
efforts of individuals or associations specially directed to the 
purpose. Laissez faire. 

2. In any mixed currency consisting of specie and convert- 
ible bank-bills, the amount of bank-bills of any given denomi- 
nation which remains in circulation is determined exclusively 
by the convenience, the feelings and preferences at the time, 
of the people among whom they circulate, wholly irrespective 
of the regulations and the efforts of the institutions which issue 
these bills, — provided only that they issue them freely, or do 



356 BANKS AND BANK CURRENCY. 

not arbitrarily keep the supply below the amount which the 
community is willing and desirous to receive. The banks may 
create a deficiency, but they cannot create an excess, in the 
circulation of such bills. In the numerous payments which 
are daily made at the banks, either in deposit or in liquidation 
of notes, that element of the currency, be it specie or bills, 
which is least in demand, least adapted to the present wishes 
and convenience of the people, will predominate, and will thus 
be quickly eliminated from the active circulation, till the ralio 
of the two branches of the currency is reduced to that point 
which the popular will requires. As the daily payments into 
the banks must, on an average, just equal the daily payments 
out of them, no effort or contrivance of the bank managers can 
avert this result. They may pay out, they usually do pay out, 
nothing but bills, and therefore, as a general rule, only bills 
are paid in ; and thus the proportion of bills to specie continu- 
ing in circulation remains unaltered. But if a panic respecting 
the solvency of the banks should be created, besides the usual 
payments in deposit and in liquidation of notes, bills will be 
presented at the counter to be cashed, or redeemed in specie ; 
and thus the proportion of coin in active circulation is rapidly 
augmented. After the panic has subsided, finding that so 
much coin is inconvenient, on account of its weight and bulk, 
and the trouble of counting it, specie will be freely paid in on 
deposit ; and then the bank payments in bills will quickly re- 
store the usual amount of paper to the currency. 

The conclusion of the whole matter may be thus stated : — 
that the total amount of the currency is determined by the ex- 
igencies of international trade, or by the equalization of the 
prices of commodities throughout the commercial world ; and 
the proportion of bank-bills to specie in a mixed currency is 
determined by the convenience and the wishes of the commu- 
nity at large. 

Mr. Tooke, the able advocate in England of what is called 
" the banking principle," in opposition to " the currency prin- 
ciple," states a portion of his conclusions in the following 
manner : — 

" That it is not in the power of banks of issue, including the 
Bank of England, to malce any direct addition to the amount 
of notes ckculating in their respective districts, however dis- 



BANKS AND BANK CURRENCY. 357 

posed they may be to do so. In the competition of banks of 
issue to get out their notes, there may be an extension of the 
circulation of some one or more of them in a large district, but 
it can only be by displacing the notes of rival banks. 

" That neither is it in the power of banks of issue directly to 
diminish the total amount of the circulation ; particular banks 
may withhold loans and discounts, and may refuse any longer 
to issue their own notes ; but their notes so withdrawn will be 
replaced by the notes of other banks, or by other expedients 
calculated to answer the same purpose. 

" That neither the country banks nor the Bank of England 
have it in their power to make additional issues of their paper 
come in aid of their banking resources. All advances by way 
of loan or discount, when the circulation is already full, can 
only be made by banks of issue in the same way as by non- 
issuing banks, out of their own capital or that of their depos- 
itors." * 

In explanation of the only exception to the truth of these 
principles, I borrow again from Mr. Tooke's able pamphlet 
" The only plausible argument," he says, " that I have met 
with, for a distinction between issuing and non-issuing banks, 
in their tendency to issue money in excess, (meaning, if trans- 
lated into correct language, ' to make advances of capital in 
excess,') is, that in the competition, either of new banks of 
issue to get a portion of the existing circulation, or of estab- 
lished banks to get an increased share at the expense of neigh- 
boring banks, they are induced, with a view of getting out 
their notes, to make advances to an undue extent, and upon 
insufficient securities. This, I think, may be admitted as true 
to some extent; and to this extent there may be sufficient 
ground for making whatever regulations should be thought 
advisable to guard against malversation of banks generally, 
more stringent as against banks of issue." f But the object of 
the regulations adopted for this purpose would be, not to di- 
minish the amount of bank-bills in circulation, but to confine 
the issue of them to solvent and well-regulated institutions 
conducted upon sound banking principles. 

The greatest abuse of the banking system here in America 

* Tooke on the Currency Principle, p. 122. f Ibid., p. 95. 



858 BANKS AND BANK CURRENCY. 

consists in the unrestricted competition of the banks with each 
other in the attempts made by each one to force its own bills 
into circulation. To understand the artifices adopted for this 
end, we must revert to the distinction already explained be- 
tween the peculiar office performed by bills of a high, and by 
those of a low, denomination. The smaller notes, not exceed- 
ing the value of $ 10 each, circulate chiefly in the transactions 
of the consumers with the retail dealers and with each other, 
in the payment of wages, and in the thousand petty transac- 
tions which make up the whole business of life for those who 
are not engaged in large commercial operations. These small 
bills often pass from hand to hand, effecting a multitude of 
small payments, and remaining out of the bank a long time, 
before they are at last collected by some small dealer, and re- 
turned to a bank on deposit, often in a dirty and worn condi- 
tion. The larger notes, on the other hand, embracing nearly 
all that exceed $ 10 each, circulate only among dealers, the 
largest of all only among wholesale dealers, and generally do 
not effect more than one payment before they are returned to 
the bank ; often they are only carried from one bank to an- 
other, and then they are exchanged in the first settlement at 
the Clearing- House, and do not properly pass into circulation 
at all. It is only through the small-note circulation, then, that 
a bank can keep out any considerable amount of its bills. 
The extent of this circulation would properly depend upon the 
comparative population of the district to which the bank be- 
longs, and not upon the amount of business transacted in that 
district, except it be business of a particular kind. Thus, 
manufacturers and other persons employing a large number of 
operatives have occasion to pay out weekly a considerable sum 
in wages, and, needing small bills for this purpose, can usually 
obtain a discount at the bank on very favorable terms, or when 
all other applicants would be refused. The officers of rail- 
roads, and others who have occasion to receive a great number 
of small payments, can distribute many small bills in " making 
change " for the larger bills which are tendered to them ; and 
these also can obtain discounts on easy terms, sometimes on 
doubtful security. Some banks will even make loans to ap- 
plicants from distant places, on express condition that the bills 
received shall be carried away, and not be paid into any bank 



BANKS AND BANK CURRENCY. 359 

at the first instance, but be distributed in small sums as occa- 
sion may arise. As only applicants of doubtful credit or in 
straitened circumstances would consent to buy the favors of 
the banks on such terms, it is obvious that such practices can 
be carried on only at great hazard. 

The difference between the large-note and smaU-note cur- 
rency may be further illustrated by the difference between 
metropolitan and country banks, in respect to the amount of 
their bills which they are able to keep in circulation. Here in 
Massachusetts, the Boston banks, with an aggregate capital of 
nearly thu'ty-three millions, have a circulation of only seven 
millions; the banks out of Boston, with a capital of only 
twenty-six millions, have a circulation of 15| milhons. More 
precisely, the Boston banks have one dollar in circulation to 
every 1 4.58 of capital ; for the country banks, the proportion 
is one to every $ 1.66. The reason for this great difference is, 
that the Boston banks supply a small-note currency for a pop- 
ulation of only 150,000 ; the country banks for a population 
numbering at least 835,000. The contrast would be still more 
striking, if the returns enabled us to distinguish large notes 
from small ones ; it would probably be found, that the larger 
part of the country-bank currency consists of biUs not exceed- 
ing on an average $ 10 in value, while most of the Boston cir- 
culation is in biUs of $ 20 and upwards. So small an amount 
of active currency for so great a commerce as that of the me- 
tropolis of New England is enough to prove the correctness of 
Mr. Tooke's statement, that " the great bulk of the wholesale 
trade of the country is carried on and adjusted by settlements 
or sets-off of debts and credits, the written evidences of which 
are in biUs of exchange, (including in that term aU promissory 
notes payable to order after date,) while current payments for 
what are called cash sales are mostly made by checks ; the ul- 
timate balance only, arising out of the vast mass of such trans- 
actions, requiring liquidation in a comparatively small amount 
of bank-notes. 

The banks in England cannot issue bills of a lower denomi- 
nation than five pounds sterling, or nearly $ 25 ; the Bank of 
France issues none below 500 francs, or nearly $ 100. In both 
those countries, therefore, the currency which is in the hands 
of the common people, and by which aU small payments are 



360 BANKS AND BANK CURRENCY. 

eifected, consists exclusively of gold and silver ; bank-notes are 
confined to the operations of trade, chiefly of the wholesale 
trade, and to the expenditures of the government and of per- 
sons of considerable fortune. 

It may well be doubted w^hether a similar policy ought not 
to be generally adopted in this country ; whether, at any rate, 
the circulation of bank-bills of a lower denomination than $ 10 
ought not to be prohibited by law. It is evident from what 
precedes, that I regard a well-regulated bank currency, convert- 
ible into specie on demand, as a cheap and convenient substi- 
tute in part for the use of the precious metals, and as a neces- 
sary instrument of commerce ; and that the evils commonly 
attributed to it, of being liable to issue in excess, and thereby 
of causing violent expansions and contractions of the total cur- 
rency, and ruinous fluctuations in prices, are imaginary, no 
such issue in excess being possible so long as the banks con- 
tinue to redeem their bills in coin. But a small-note currency 
cannot be well regulated ; the profits resulting from its issue 
being considerable, there is a keen competition among the 
banks to obtain as large a share as possible of the business, 
and this competition leads to injurious and hazardous prac- 
tices, whereby the solvency of these institutions and the stabil- 
ity of the whole system are perilled. Such a currency is safe 
only when it is backed by sufficient specie reserves ; but as 
there is a loss of interest on such reserves, there is a great 
temptation to reduce them to narrower limits than prudence 
would warrant. The circulation of some of the country banks 
in Massachusetts is to the specie in their vaults as more than 
forty to one. It is true, that a portion of the specie which is 
the guaranty of their circulation is lodged in the Boston banks ; 
but the aggregate bank circulation of the State is to the aggre- 
gate specie reserve as more than five to one, a proportion 
which is hardly consistent with the safety of the whole, and 
which, as this reserve is very unequally distributed, is certainly 
pregnant with danger to many. Each bank, looldng only to 
its own safety, and not to the safety of the whole system, re- 
lies upon the aid of the other banks, in case of specie being 
suddenly demanded of it to any considerable extent ; it issues, 
for instance, $ 100,000 in bills, when it has less than $ 3,000 
in coin, because it knows that, if an emergency should arise. 



BANKS AND BANK CURRENCY. 361 

it could easily obtain | 30,000, either in coin or bills, from the 
neighboring or associate banks. So it could, if the emergency 
were a limited one, that perilled only its own safety. But if 
there were a general run upon all the banks, such as might 
easily be produced in a time of pressure by the reported insol- 
vency of two or three of them, each one would be obliged to 
take care of itself, and could render no aid to its correspond- 
ents or neighbors. Though the run, then, might not be ex- 
tensive enough to appear serious in the outset, it might still 
suffice to break half of the country banks in the State ; and 
the alarm being thus quickened into a panic, the demand for 
coin would so rapidly increase, that a general suspension of 
specie payments would inevitably ensue. It was thus that all 
the banks were compelled to suspend in May, 1837. At that 
time, most of the banks in New England, and many of those 
in the other States, were in what would be usually considered 
as a perfectly sound condition ; they had suffered no extraordi- 
nary losses, their capitals were unimpaired, and their specie 
reserves bore the ordinary ratio to their circulation. But it 
was a time of great financial distress, — the reaction from a 
speculative fever that had reached its crisis. While the pub- 
lic mind was in this excited state, the failure of a few really 
insolvent banks in the Middle States gave a direction to the 
panic, and an immediate and total suspension became inevita- 
ble. As fast as the news spread, the banks, conscious of their 
inability to meet a storm, closed their doors before the run 
upon them could begin. Though perfectly provided for ordi- 
nary fair weather, they were unable to withstand the first gust 
of a tempest. But the act was only a suspension ; it was not 
insolvency. After the alarm had had time to subside, the 
banks reopened their doors, and, here in New England at least, 
not one in fifty of them failed to redeem every penny of its 
obligations. 

In reference to bank currency, what the public need to be 
guarded against is not the occasional mismanagement or fraud- 
ulent conduct of a few institutions ; against these, the watch- 
fulness of the other banks, and the general severity of the laws 
against fraud, are a sufficient protection. The great evil is the 
general insecurity of the whole system in a time of pressure ; 
and this evil cannot be obviated so long as there is a bounty 
31 



362 



BANKS AND BANK CURRENCY. 



upon the diminution of the specie reserve, and upon the exten- 
sion of the small-note currency. Our present system throws 
the bulk of the circulation into the hands of the community in 
general, — that is, of persons who have no concern with the 
banks in their ordinary transactions, who have little to do with 
commerce, who know nothing of the circumstances on which 
the safety of the currency depends, who are peculiarly liable to 
panic, and are apt to adopt, when alarmed, only such meas- 
ures as will increase the danger. There is a saving of expense, 
as we have shown, in the substitution of bank paper for gold 
and silver coin ; but this is not a saving of expense for the body 
of the people. It accrues exclusively to the benefit of the 
banks, and of the customers of the banks, — that is, of the 
trading community and the capitalists. It is a saving made 
through the people, but not for the people, who do not profit 
by it, except in some small measure, by an increase of conven- 
ience in the use of a currency which is not burdensome by its 
weight and bulk. Common justice requires, then, that the 
people should be protected against the slightest risk in the use 
of this currency. It should be made to them as secure as the 
coin which its circulation deprives them of; and this is obvi- 
ously impossible, so long as the occurrence of a financial pres- 
sure may at any time drive all the banks in the country, how- 
ever well managed, to a suspension of specie payments. Banks 
are now instituted where the exigencies of commerce do not 
call for them, — in small towns, where there is little trade and 
little surplus capital, — in order only to profit by the circula- 
tion of small bills, wliich can be put forth in large amounts in 
such neighborhoods. They are country banks only in name 
and ostensible location, their capital being generally furnished 
by merchants and bankers from a distance, and often lent out 
again in large sums to the stockholders themselves. Cut off 
the smaU-note currency, and such institutions, which are estab- 
lished on false pretences, even if they are not fraudulent in in- 
tention, would cease to exist ; and the banking business proper 
would be conducted only in cities and large towns, by that 
portion of the community who are directly interested in it, and 
who alone would be affected by its fluctuations. Banks would 
no longer be the objects of popular jealousy and dislike. They 
would be regarded as exclusively commercial institutions, 



BANKS AND BANK CURRENCY. 



363 



whose operations no more concern the public at large than 
those of the stock exchange. 

The great obstacle in this counliy to the prohibition of a 
small-note currency is the independent legislation of the differ- 
ent States. If Massachusetts, for instance, should forbid the 
issue of bills for a less sum than $ 10 by its own banks, its cur- 
rency would immediately be flooded by small notes from the 
other New England States, the banks in which, being relieved 
from competition, would be able to send out a much larger 
amount of such notes than before. The Federal government 
having no power under the Constitution to interfere in such a 
case, the circulation of small notes could be effectually prohib- 
ited only by concert among the individual States ; and this 
would require greater unanimity of action by the different leg- 
islatures than can reasonably be expected. 

All the expedients which have been devised for the security 
of a smaU-note circulation are insufficient, because they are 
not directed against the quarter from which there is any real 
apprehension of danger; they are fortifications of a point 
which is not seriously menaced. They are expedients, not to 
lessen the amount of the small-note currency, nor to provide 
against a general suspension of specie payments by the banks, 
and a consequent depreciation of the whole currency, but to 
obviate the risk of insolvency by one or more banks, and to 
provide for the ultimate redemption of their bills even when 
they become insolvent. This last purpose would be suffi- 
ciently answered by merely giving a priority of payment to 
the bill-holders, as in all ordinary cases, the assets of an insol- 
vent bank are large enough to redeem its circulation, though 
not to pay off its deposits and other liabilities ; and extraordi- 
nary cases are provided for by the penalties, enacted against 
fraud. 

The Safety Fund system, as it was called, was a kind of 
mutual insurance by the banks of each others' circulation ; all 
were compelled to contribute a small proportion of their capi- 
tal to form a general fund, out of which the bills of an insol- 
vent bank were to be redeemed. This was a tax imposed 
upon the well-regulated institutions to make up for the frauds 
or malpractices of their rivals ; it offered no security against 
the occurrence of a general panic and a general suspension. 



364 BANKS AND BANK CURRENCY. 

Another expedient, now adopted in many States, is to author- 
ize any association for banking purposes to issue notes of any 
denomination, from one dollar upwards, on condition of mak- 
ing a deposit with the State authorities of public stocks, mort- 
gages, and other good securities, to an amount, at their present 
market value, equal to that of the notes which th'ey propose to 
circulate. This deposit is a guaranty for the ultimate security 
of their issues, which sort of guaranty, as we have seen, is not 
at all necessary. What is needed is security for the immediate 
convertibility of bank currency, without which, in a general 
panic, it may undergo great depreciation, though there is posi- 
tive assurance that the notes will ultimately be redeemed in 
full. To allow mortgages of real estate to form a portion of 
this State deposit is especially unwise ; for mortgages, as we 
have seen, because the sums for which they are granted cannot 
be realized till after long delay, do not form a safe basis on 
which the banks could make ordinary discounts. As to the 
State stocks and other public securities, Mr. Gouge properly 
observes, " The mischief is, that they are least available when 
they are most wanted ; the very causes which might prevent 
the banks from redeeming their issues promptly, would cause 
a fall in the value of the stocks and mortgages on the ultimate 
security of which their notes have been issued." In a com- 
mercial crisis, or after a general suspension of specie pay- 
. Y'v ^ ments, many such stocks and securities might become entirely 
unsalable. 

The Sub-Treasury system, as it is called, adopted by Con- 
gress in 1846, as a means of divorcing the fiscal operations of 
the Federal government from the banks, and of contributing to 
the establishment of a currency consisting exclusively of gold 
and silver, is ludicrously insufficient for this last purpose, to 
effect which it begins at the WTong end. It is the rude and 
operose plan of requning all payments to or by the United 
States to be made entirely in specie. The balance which re- 
mains at any time in the hands of the government must con- 
sist exclusively of coin, and be deposited in vaults and safes, 
under the strict injunction that it must not be put to any use, 
or applied to any beneficial purpose whatsoever. In what 
manner this sum, varying during the last few years from 20 
to 25 millions of dollars, thus lying dead and unproductive, 



BANKS AND BANK CURRENCY. 365 

guarded by thick walls and iron grates, can promote or expe- 
dite the general adoption of a specie currency, it is difficult to 
imagine. The mere necessity of keeping up this idle deposit, 
which is liable to sudden and great fluctuations in amount, 
under the varying ratio of the government receipts to the gov- 
ernment expenditures, would of itself be a formidable obstacle 
to the safe establishment of a metallic currency ; the money- 
market would be subject at any time to a dangerous expansion 
or contraction from the involuntary movements of the national 
treasury. Besides, the fiscal transactions of the government 
are necessarily on an extensive scale ; it deals in very large 
sums, such as most easUy and naturally assume the shape of 
paper evidences of debt, transfers of book credits, and other 
modes of settling accounts and effecting current payments 
without the necessity of moving, or even counting, large 
amounts of specie. It is in the numerous petty transactions 
of ordinary life among common people, that the weight and 
bulk of gold and silver coin cease to be an encumbrance, and 
that the want of the perfect security which it affords is seri- 
ously felt. A metallic currency would be a boon to the lower 
classes, but is an intolerable burden to the State. According 
to the admission of its most zealous advocates, the Sub- Treas- 
ury has occasioned only a very limited circulation of gold and 
silver, — " chiefly from the public depositories to the banks, and 
back again from the banks to the public depositories." 

In spite of numerous and jealous restrictions in the law, 
large sums will be received and paid out by the same office, 
on the same day, in some more easy and compendious form 
than by a double transfer of coin, or by rolling kegs of specie 
out of the door, and then rolling them in again ; and the busi- 
ness of exchange between distant portions of the country will 
be conducted without the actual transportation of the precious 
metals, except to a very limited extent. The law requires, for 
instance, that all sums should be received and paid in gold or 
silver ; but the law cannot prevent A, a creditor of the United 
States, who has just received a draft for $ 10,000 on the Sub- 
Treasurer in New York, from selling that draft to B, a mer- 
chant who has occasion to pay the government that sum on 
account of the duties on a cargo of goods, and who finds it 
more convenient to deliver the draft than to employ a horse 
31* 



366 



BANKS AND BANK CURRENCY. 



and dray to carry the specie. In respect to such transactions, 
the Sub- Treasury is only a convenient deposit hank for the 
creditors of the United States, and the government drafts upon 
it are unexceptionable evidences of debt, or certificates of de- 
posit, which, being indorsed over from one person to another, 
may effect many settlements of accounts between individuals, 
before they are finally paid into the treasury as ordinary re- 
ceipts of custom-duties. Nay, the government itself, for its 
own convenience in transporting funds from one part of the 
country to another, has been obliged, in order to avoid the 
delay, risk, and expense of the actual conveyance of specie, to 
drive a traffic in these drafts, thus performing a service for 
others while receiving a favor for itself. " For example," says 
Mr. Gouge, " a person in Washington city wishes to pay a 
sum of money in New York. He deposits the gold or silver 
in the treasury office at Washington, and receives an order in 
return for an equal amount of gold and silver on the assistant 
treasurer at New York. In this way, the government is saved 
the expense of bringing gold and silver from New York to 
Washington city, and private individuals the expense of carry- 
ing gold and silver from Washington city to New York." In 
fact, the practice was soon instituted " of assigning transfer 
drafts to bankers, brokers, and others, and allowing them the 
use of the money for such time as, it may be supposed, will 
compensate them for the expense of transporting specie from 

one depository to another At the commencement of 

the system, some seventy or eighty days were allowed for car- 
rying money from New York to New Orleans ; but the time 
was gradually prolonged, so that from 100 to 135 days were 
consumed in transporting the pubHc money from the deposi- 
tory at New York to the depository at Washington." The 
transfers thus made within a period of twenty-eight months 
exceeded fifteen millions of dollars, and the money was out of 
the treasury depositories on an average about sixty days. In 
respect to this function of transfer, the Sub-Treasury is only a 
great exchange hank, though it performs gratuitously the ser- 
vices for which other exchange brokers charge a premium. In- 
stead of divorcing the treasury from the banks, therefore, the 
institution is itself a bank, — a very ill-constituted one, how- 
ever, performing in a bungfing manner two banking functions 



BANKS AND BANK CURRENCY. 367 

in spite of itself, but reaping no profit from them, and only de- 
ranging the transactions of other banks by its abnormal inter- 
ference and competition. 

It really performs to a certain extent a third banking 
function, by supplying a considerable amount of paper cur- 
rency ; when the government draws upon it, there is nothing 
to prevent the person in whose favor the draft is made from 
indorsing it in blank, as it is termed, (that is, without naming 
the indorsee,) and then it is a bank bill, which, without further 
indorsement, may be transferred successively to many differ- 
ent hands, and effect as many payments, before it is finally 
presented for payment, or paid in, at the particular Sub-Treas- 
ury on which it is drawn. True, the law requires the Secre- 
tary of the Treasury " to enforce the speedy presentation of all 
government drafts for payment at the place where payable, 
and to prescribe the time, according to the different distances 
of the depositories from the seat of government, within which 
all drafts upon them respectively shall be presented for pay- 
ment." But this provision is wholly indefinite, and cannot be 
made otherwise than indefinite, as more or less time may be 
necessary under different circumstances, and within a very 
short time many transfers of the draft would be possible. 

These facts illustrate the general principle, that large pecu- 
niary transactions cannot be effected on the rude and burden- 
some plan of an actual transfer of specie at every payment. 
The various commercial expedients, of deposits, transfers of 
credit, sets-off, bills of exchange, and other forms of paper cur- 
rency, w^ill intrude themselves, however they may be forbidden 
by law, in order to save the parties concerned the intolerable 
annoyance of counting out, or weighing out, large amounts in 
coin, of carrying tons of specie to and fro over great distances, 
and of employing a horse and dray every time that it is neces- 
sary to pay or receive a few thousands. We might as well 
seek to do away with gas-lights, steamboats, and railroads, as 
attempt to prohibit these labor-saving and time-saving contri- 
vances. What is wanted is not prohibition, but regulation, of 
a paper currency. Take away the small notes, and the large 
ones will regulate themselves, because they will circulate only 
among merchants, bankers, and capitalists, who understand 
the principles on which they are issued, and will most easily 



368 BANKS AND BANK CURRENCY. 

detect any mismanagement in relation to them, by which they 
would be themselves the first and greatest sufferers. 

I have already borrowed from Adam Smith the ingenious 
illustration, that " the gold and silver money which circulates 
in any country may very properly be compared to a highway, 
which, while it circulates and carries to market all the grass 
and corn of the country, produces itself not a single pile of 
either." He carries out the comparison still further. " The 
judicious operations of banking," he remarks, " by providing, 
if I may be allowed so violent a metaphor, a sort of wagon- 
way through the air, enable the country to convert, as it were, 
a great part of its highways into good pastures and corn-fields, 
and thereby to increase very considerably the annual produce 
of its land and labor. The commerce and industry of the 
country, however, it must be acknowledged, though they may 
be somewhat augmented, cannot be altogether so secure, when 
they are thus, as it were, suspended upon the Daedalian wings 
of paper money, as when they travel about upon the solid 
ground of gold and silver. Over and above the accidents to 
which they are exposed from the unskilfulness of the conduc- 
tors of this paper money, they are liable to several others, from 
which no prudence or skill of those conductors can guard 
them." 

Among such accidents is the possible occurrence of a panic, 
or the reaction from a speculative fever, which may cause a 
drain of specie sufficient to exhaust the reserves of the banks. 
The mere presence of a reserved fund of coin and bullion in 
the country is no safeguard against such a calamity, if it be 
locked up as in the vaults of the Sub-Treasury, whence it will 
not be forthcoming to meet a drain, whether that drain be 
caused by a demand for export growing out of previous exces- 
sive importation, or by a general propensity to hoard coin 
stimulated by alarm for the safety of the banks. The fund so 
locked up might as well, for any practical purpose, be on the 
other side of the Atlantic* It is said, indeed, that the neces- 

* "Any addition of specie," says Mr. Webster, " in order to be useful, must either 
go into the circulation as a part of that circulation, or else it must go into the banks 
to enable them the better to sustain and redeem their paper. But this bill [to es- 
tablish the Sub-Treasury] is calculated to promote neither of those ends, but exactly 
the reverse. It withdraws specie from the circulation and from the banks, and piles 



BANKS AND BANK CURRENCY. 369 

sity of keeping up this fund occasions frequent calls upon the 
banks for coin, and to meet these calls they are obliged to for- 
tify themselves with larger specie reserves than they would 
otherwise deem necessary. So they are ; but the additional 
funds are thus provided to meet the demands of the treasury, 
and not to be a safeguard of the bank issues ; the additional 
danger exhausts, and probably a little more than exhausts, the 
additional protection. 

The only use to which this idle treasury fund could be put, 
with a view to the improvement of the currency, would be to 
make it the basis for an issue by the government of an equiva- 
lent sum in small notes, designed for general circulation. As 
such notes would rest upon the faith of the Federal govern- 
ment, would be represented, dollar for dollar, by coin actually 
in the treasury, for which, at any time, they could be ex- 
changed, and would have a general instead of a local charac- 
ter and currency, they would be preferred to the small bills 
issued by the banks, which they would soon displace and drive 
out of circulation. Being issued, moreover, only for small 
sums, never exceeding five, or, at the utmost, ten dollars, they 
would only form small currency for the bulk of the people, 
and would be used but to a very small extent in wholesale 
trade or large financial operations, so that they would not en- 
able government to interfere with the ordinary course of traffic 
and exchange. As they would be issued only in payment of 
government debt or in ordinary expenditure, the treasury 
would still have the use of all its funds, while preserving intact 
in its vaults an amount of specie equal to the whole amount 
of its notes in circulation. Such a currency, if limited to an 
amount somewhat below that of the probable circulation of 
small bills, would have all the convenience of paper and all the 
security of coin ; no panic could shake public confidence in it, 
or subject it to a depreciation. There would, indeed, be no 

it up in useless heaps in the treasury. It weakens the general circulation, by mak- 
ing the portion of specie which is part of it so much the less ; it weakens the banks, 
by reducing the amount of coin which supports their paper. The general evil im- 
puted to our currency, for some years past, is, that paper has formed too great a 
portion of it. The operation of this measure must be to increase that very evil. I 
have admitted the evil, and have concurred in measures to remedy it. I have fa- 
vored the withdrawing of small bills from circulation, to the end that specie might 
take their place." — Webster's Works, Vol. IV. p. 457. 



370 BANKS AND BANK CURRENCY. 

economy in its adoption, as a corresponding amount of specie 
would lie idle in the treasury. But it lies there idle now, 
while the injurious and unsafe portion of the bank currency 
circulates freely. The only object in issuing this paper 
would be to displace the insecure small-note circulation of 
the banks, and to provide a perfectly safe and convenient cur- 
rency for the community at large, who are not engaged in 
trade or banking. 

But as political considerations would probably be an insu- 
perable obstacle to the adoption of this plan, or of any other 
scheme for doing away with the small-note circulation of the 
banks altogether, the question remains, if there are not some 
means of lessening the quantity, and adding to the security, of 
that circulation. A judicious application of the taxing power 
might have this effect. Here in Massachusetts, and in several 
other States, a heavy tax is laid on bank capital as such, and 
individuals are also taxed for the bank stock which they may 
own, as well as for their other property. Thus, capital in- 
vested in banks is taxed twice over, — an injurious and unrea- 
sonable distinction, as its effect, so far as it goes, is to raise the 
rate of interest, increase the difficulty of borrowing money, 
hinder capital from passing into the hands of those who will 
use it to the best advantage, and prevent the industrious and 
enterprising classes from obtaining the means of applying their 
industry and enterprise in such a way as to obtain the largest 
possible results. I have already shown at some length, (vide 
ante, pp. 8 - 12,) that wealth is not locked up when placed in 
banks, but rather that it is thereby released from a state of in- 
activity, and " made to do its full part in supplying the lungs 
of industry, keeping it alive and active, and making all the 
parts of the body politic and social contribute to the suste- 
nance and growth of the whole." A widow, for instance, who 
could make no use of her little property if it remained in her 
own hands, invests in a bank, which lends it to industrious 
tradesmen and mechanics, and they obtain additional tools and 
goods with it, and thus labor to better purpose, sharing their 
increased gains with the owner of the capital, who thus ob- 
tains income from it without diminishing the principal. " The 
declaration so often quoted," says Mr. Webster, " that ' all who 
trade on borrowed capital ought to break,' is the most aristo- 



BANKS AND BANK CURRENCY. 371 

cratic sentiment ever uttered in this country. It is a sentiment 
which, if carried out by political arrangement, would condemn 
the great majority of mankind to the perpetual condition of 
mere day-laborers. When we abolish credit, we divorce labor 
from capital ; and when we divorce labor from capital, capital 
is hoarded and labor starves." 

Instead of imposing a double tax upon the banks, so far as 
tliey are institutions of deposit and discount, they ought rather 
to be released from taxation altogether. A bounty rather than 
a penalty should be enacted for taking capital out of the hands 
of those who either cannot use it or will not use it, and con- 
fiding it to those who will unite it with industry, and thus 
make it active in the great business of production. The 
double tax has been imposed from an indistinct perception of 
the fact, that the banks in their third function, as issuers of 
bank currency, and especially of the small-note circulation, ob- 
tain profits which do not properly belong to them, and subject 
the community thereby to very considerable hazard of loss for 
the sake of their own advantage. If paper currency is to be 
substituted for metallic currency, the profits of the substitution 
ought to accrue for the benefit of those who make it, — of 
those who are willing to give up coin, and accept paper with 
all its attendant risks. The act of substitution is the act of 
the community at large ; to be the agents in this act is a 
usurped function of the banks, in no wise connected with their 
other and proper offices. It belongs to the state, and ought 
to be exercised for the benefit of the tax-payers, — that is, of 
the persons who, by giving up coin and accepting paper, make 
a saving of the precious metals, and ought to profit by that 
saving. Especially is this reasoning applicable to the case of 
the small-note circulation. In respect to bills of a higher de- 
nomination than $ 10, it may fairly be urged, that they cir- 
culate generally among merchants, bankers, and capitalists, 
who therefore ought to be allowed, through the banks, to con- 
trol the issue of them, so far as it can be controlled consist 
ently with maintaining their convertibility into specie on 
demand, and to reap the benefit of their circulation. But not 
so with regard to the small bills, which are the money of the 
bulk of the people. Here, the whole risk rests with the per- 
sons who use the notes ; and if any profit is to be derived from 






372 BANKS AND BANK CURRENCY. 

that use, this also should belong to them. Otherwise, a seri- 
ous hazard is imposed upon them for the benefit of others, who 
can show no good title to the gains which they usurp. " It is 
quite idle," says Mr. T. Tooke, a zealous advocate of the 
banks, " it is quite idle to say that the lower classes have the 
option of refusing to take the country notes ; practically, in 
the great majority of instances, they have not and cannot have 
any such option. But if there is any object more important 
than another, for which the government of every state has been 
invested with the privilege of coining money, it is that of pro- 
tecting the lower classes of society, who are little competent 
in this particular to protect themselves, from the risk of loss in 
receiving their stipulated wages or other payments." 

Take off the tax of one per cent on bank capital, then, and 
impose a tax of five or ten per cent on the circulation of aU. 
bills below the denomination of ^ 10. The amount of small 
notes would thus be very much diminished, and as the state, 
through the tax, would reap nearly the whole profit fi-om those 
remaining in circulation, it could well afford to guarantee their 
immediate convertibility into specie. Such a measure would 
be even preferable to the one adopted in England, after the 
failure of so many private banks of issue in 1825. The circu- 
lation of one-pound notes at that time was computed at up- 
wards of five millions sterling. So many of them became 
valueless, or were greatly depreciated, by the failure of the 
issuing banks, that Parliament the following year entirely sup- 
pressed tliis class of notes. However it may be regretted, adds 
Mr. Tooke, "that the holders of private country bank-notes, 
being now of the denomination of <£ 5 and upwards, should 
occasionally be exposed to loss by failure of the issuers, it will 
hardly be contended that their case is so important and so 
clearly distinct from the case of depositors, and other sufferers 
by the failure of banks, as to justify, with the view of protect- 
ing them, an alteration of the whole system of issue." 



PAPER MONEY. 373 

CHAPTEU XXI. 

PAPER MONEY, AND ITS USE AS A REVOLUTIONARY CURRENCY. 

"We have still to speak briefly of the circulation of paper 
money, properly so called, or of bills which do not profess to 
be immediately convertible into specie. These are sometimes 
issued by the state, in cases of great emergency, and are then 
usually called bills of credit. In this form, they are forbidden 
by the Constitution of the United States, which declares that 
" no State shall coin money, emit bills of credit, or make any- 
thing but gold or silver coin a tender in payment of debts." 
Bank-notes, also, after the banks have suspended specie pay- 
ments, so that their notes are no longer convertible into coin 
on demand, become bills of credit, or paper money. Thus the 
currency of Great Britain consisted of paper money from 1797, 
when the Bank of England suspended payment, till 1819, 
when it resumed. The distinguishing characteristics of such 
money are, that it is inconvertible, and its circulation is com- 
pulsory. Thus, to take the more common form of this cur- 
rency, which is issued by the authority of the state, when the 
government has no longer the means of meeting its pecuniary 
engagements, it begins to make purchases and to pay its debts 
by issuing, not coin, nor bills immediately convertible into 
coin, but its own promises to pay at some future time. These 
" promises to pay " are made le^al tender, — that is, creditors 
are compelled to receive them in satisfaction of their demands. 
Then- circulation is compulsory, then ; but the very fact that 
they are receivable in payment of debts gives them a conven- 
tional value. To any person who has money to receive, it 
matters nothing whether the money possesses intrinsic value 
or not, or whether the " promise to pay " which it bears upon 
its face is ever redeemed or not, provided he is sure that he 
can make payments with it, and cancel his own obligations. 
Even if the money is undergoing a rapid depreciation, as he 
does not expect to retain it any time in his possession, but in- 
tends to pay it away again the next day, or even the next hour, 
32 



374 PAPER MONEY. 

he knows that it cannot lose much value in his hands, but that 
it will be worth nearly as much when he parts with it as when 
he received it. Paper dollars are as good as silver ones, so long 
. as they Avill cancel debts and effect purchases equally well. 
I ' Paper money of this Idnd was issued by nearly all the Amer- 
ican Colonies before the period of their separation from Eng- 
land ; and from the various degrees of its depreciation in dif- 
ferent parts of the country arose the different value of the shil- 
ling', which is still with us a popular denomination of account, 
though not an actual coin, and not recognized in the legal cur- 
rency. The shilling was the denomination used in the Colo- 
nial paper money ; and when the shilling had its par value, 
4s. 6d. were equal to a silver dollar. But paper shillings became 
depreciated, so that, in New England, six shillings came to pass 
for a dollar ; in New York, eig-ht, and in Pennsylvania, seven 
shillings had this value. The names of these "shillings" and 
" pence " have remained for nearly a century after the disap- 
pearance of the reality, and still create much confusion in the 
popular mode of reckoning money. 

But the most remarkable experiment of paper money here 
in America was the Continental currency, as it was called, 
issued by authority of Congress during the American Revolu- 
tion. The epithet " Continental," like National or Federal 
now-a-days, marked the distinction between what was done by 
the government of the whole Union, and the acts of the sepa- 
rate Colonies or States. In June and July, 1775, to meet the 
expenses of the war which was seen to be inevitable, and in 
fact had already commenced at Lexington, Congress, having 
no other funds, issued three millions of dollars in these bills of 
credit, with a promise that they should be redeemed in four 
annual instalments, to commence at the end of four years. 
The burden of redeeming them was distributed among the sev- 
eral Colonies, in the ratio of their supposed number of inhabit- 
ants. The bills were issued in the purchase of provisions and 
munitions of war, and in the payment of the troops. In No- 
vember of the same year, the issue of three additional millions 
became necessary ; the annual instalments for redeeming this 
sum were to begin in eight years. Specie, which had been 
scarce before, had now almost entirely disappeared from the 
country, and the " Continental money " was considerably de- 



PAPER MONEY. 375 

predated. So rapidly did this depreciation and the exigencies 
of the war increase, that in the course of the following year, 
1776, fourteen millions more had to be issued. After the issue 
of the first six millions, no time was fixed for the redeniption 
of the bills. Of course, the depreciation, aggravated by large 
local issues of the several Colonies, soon became alarming, and 
futile attempts were made by Congress and the Colonial legis- 
latures to check it. The New England Colonies tried to reg- 
ulate by law the prices to be paid in this currency for labor 
and commodities ; and Congress resolved, that the bills ought 
lo pass for the same value as Spanish dollars in all dealings 
and payments, and that all persons who should refuse to take 
them at this valuation, ought to be considered as " enemies to 
the United States," and to be punished with forfeitures and 
other penalties. But the necessary laws of exchange and trade 
were not to be counteracted by legislative enactments or the 
patriotism of the people. Additional issues continued to be 
made, and the paper continued to depreciate, until, in 1780, 
the amount in circulation was about 200 millions, and 500, 
even 1,000, dollars in this cm-rency were offered for one in sil- 
ver.* Then finally the bills ceased to circulate, and became 
entirely worthless, as dealers would not accept them on any 
terms. 

No attempt was subsequently made to cancel the original 
obligation by redeeming the bills, either in full or in part ; for 
as the depreciation had been gradual, while the bills were rap- 
idly circulating in the community, it had obviously become 
impossible to measure the exact loss which each holder of them 
had suffered. To pay the last holder in full would only have 
aggravated the injustice, by giving him much more than was 
his due, and leaving his predecessors without any compensa- 

* John Adams, in a letter to the Count de "Vergennes (June 22, 1780), gives 
some curious particulars respecting the enormous prices which were paid for com- 
modities in America in 1779 and 1780, in consequence of this depreciation of the 
currency. "Bohea tea," he says, "forty sous a pound at L'Orient and Nantes, sold 
for forty-five dollars. Salt, which costs very little in Europe, and used to be sold 
for a shilling a bushel, was forty dollars a bushel, and, in some of the other States, 
two hundred dollars at times. Linens, which cost two livres a yard in France, forty 
dollars a yard. Broadcloths, a louis d'or a yard here, two hundred dollars a yard. 
Ironmongery of all sorts, 120 for one. Millinery of all sorts, at an advance far ex- 
ceeding. These were the prices at Boston. At Philadelphia and in all the other 
States, they were much higher." — John Adams's Works, Vol. VII. p. 199. 



376 PAPER MONEY. 

tion whatever. It was justly remarked, that the depreciation 
of the paper money ought to be considered as a tax, inasmuch 
as the paper was first issued only to relieve the people from 
the necessity of paying a tax. Each person through whose 
hands the money passed parted with it again at a loss, propor- 
tioned to the quantity he held and the time he held it. As the 
currency circulated among the whole people, the rich and poor 
holding it, and suffering by its depreciation, in proportion to 
the respective amounts of their cash purchases and sales, the 
whole loss was divided among them very nearly in just propor- 
tion to their ability and liability to pay a tax. The payment 
of the whole value borne on the face of the bill to one who had 
received it, perhaps, at the rate of a hundred for one, could 
have been made only by a second tax on the same persons 
who had already been fairly and heavily taxed by its deprecia- 
tion. 

The history of the paper money issued in France, in the 
course of the Revolution which commenced in 1789, is per- 
fectly similar to that of the corresponding experiment in 
America. The French bills of credit, however, as their name 
(assignats) indicates, were nominally issued upon a basis of 
real property. The national domains, as they were termed, or 
the confiscated estates of the crown, the clergy, and the emi- 
grants, were made over, or sold in mass, to the municipalities 
or towns in which they were respectively situated. These 
municipalities, not having funds to pay immediately, received 
the property on long credit, binding themselves to pay in in- 
stalments, as fast as they were able to make sales of the estates 
mthout sacrifice. The creditors of the state then obtained 
their dues by receiving orders or assignments (^assignats') on 
the municipalities for a portion of the debt thus due to the 
state. The holders of these orders might, if they saw fit, 
immediately obtain the value of them, by becoming the pur- 
chasers of the estates which the municipalities had to sell, and 
paying for them in assignats. If they preferred to wait, they 
still had the value of the national domains, and the obligations 
of the municipalities, as securities for the ultimate payment of 
the debt. Meanwhile, the assignats themselves were transfer- 
able property, wliich might be exchanged for commodities, or 
assigned in payment of debts ; and to aid the negotiation of 



PAPER MONEY. 377 

them, they were made transferable without indorsement, and 
constituted legal tender ; that is, they were converted into pa- 
per money, and as the issue of them increased, they displaced 
the sounder portions of the currency, and became the universal 
medium of exchange. 

As the expenditures of the state were heavy, through the 
war in which it was involved, and as it was an easy process to 
stamp and issue assignats in satisfaction of all demands, the 
issue of this paper money soon became excessive, and the in- 
evitable consequence followed, its rapid and great depreciation. 
This fall in value could not be checked by the sale of the con- 
fiscated estates, for, as the currency depreciated, the prices of 
the national domains, as well as of all other property, rose in 
the same proportion. The issue began in 1790 ; and as early 
as 1793 one franc in silver had come to be worth six francs in 
assignats. The arbitrary government of the Jacobins, who 
were then in power, having put in forced circulation the anti- 
cipated proceeds of the property, now undertook to sustain the 
value of its cun-ency by penal enactments. They might as 
well have enacted laws to prevent the sun from setting at the 
close of the day. Six years' imprisonment was denounced 
against any one who should exchange any amount of silver or 
gold for a greater nominal value of assig-nats ; and a maximum 
of price was established for bread and the other necessaries of 
life. The only consequence was, that the owners of grain and 
other commodities refused to bring them to market at all, and 
thus what was a scarcity became a famine. The starving peo- 
ple then became furious ; the severities formerly exercised only 
against the nobles, the clergy, and the royalists were now 
turned against the rich, the farmers of the public revenue, the 
traders who were accused of monopolizing food and holding it 
back from sale, &c,, and these were sent in crowds to the guil- 
lotine. But all the terrors of that period which was emphati- 
cally called " the Reign of Terror " were not enough to arrest the 
depreciation. Bread rose to 22 francs (nominally over $ 4) a 
pound, and the prices of other commodities were in proportion. 
The issue of assignats amounted, in 1796, to the enormous 
sum of 45,000,000,000 of francs. But the state receipts from 
taxes, loans, the sale of the national domains, and other causes, 
had reduced the amount actually in ckculation to about 
32* 



378 PAPER MONEY. 

24,000,000,000. These were exchanged, at the rate of thirty 
for one, for mandats, another species of paper money, the holder 
of which was entitled to take any portion of the confiscated 
estates not yet sold, by paying in this new currency 22 times 
the rent which the property brought in 1790. The mandats 
were also receivable in payment of government taxes and 
loans. In this way, the stock of paper money in circulation 
was greatly diminished ; but the issue of mandats still being 
excessive, they finally became as much depreciated as the as- 
sig-nals had been before them, and by a spasmodic effort, both 
the government and the people reverted to a specie currency. 
The final result of the experiment in France, as in America, 
was, that through the depreciation of the currency, the people 
paid a very heavy tax for the success of the Revolution, — a 
tax somewhat irregularly and unequally imposed, but yet 
approaching as near to equity as could be expected from any 
public measure which had its birth in the exigencies and tur- 
moil of a great civil war. 

Paper money was also issued by the revolutionary author- 
ities of Hungary and Rome in 1849 ; but the speedy restora- 
tion of the former government in both cases prevented the 
experiment from being worked out to an end. In fact, expe- 
rience has proved, what might have been demonstrated from 
the theory of the subject, that this kind of money is a proper 
revoludonan/ cnrrcnci/. It is usually first issued amid the 
commercial disasters, and the destruction of public and private 
credit, which are among the first consequences of the overthrow 
of an old government, and the outbreak of a civil war. The 
way is prepared for the introduction of it by a violent contrac- 
tion of the old currency, consequent on the general disappear- 
ance of the gold and silver coins, which everybody at such a 
crisis is disposed to collect and hoard, or to send out of the 
country. This gap or vacuum in the circulation manifests 
itself by the extraordinary low prices of all commodities, the 
difficulty of effecting sales of any kind of property, the conse- 
quent impossibility of meeting commercial engagements, and 
general bankruptcy. Some kind of money — it hardly matters 
what — is needed to fill up this gap; and it turns out, by a 
happy coincidence, that the issue of some sort of conventional 
currency is the only financial resource of the revolutionary 



PAPER MONEY, 379 

government. At the trivial expense of stamping bits of paper 
with a vague " promise to pay " at some future date, the insur- 
gent authorities, otherwise penniless, find their exchequer as 
well supplied for a time, as if, to adopt Mr. Ricardo's illustra- 
tion, a gold mine had been suddenly discovered within the pre- 
cincts of the public treasury. In such cases, it is thought to 
be the enthusiastic patriotism of the people which, for a while, 
sustains the credit of the new currency, and preserves it from 
any material depreciation, till a very considerable amount has 
been issued. But the truth is, that the gap produced in the 
circulation, by the causes already explained, creates a pressing 
want of something to fill it up, and restore prices to their for- 
mer level. Any kind of money, though the feelings of the 
people were against rather than in favor of the issuers of it, 
would have this effect, provided only that it be made legal ten- 
der, or an instrument for discharging debts. So long as the 
new currency is not more than sufficient to fill up the vacant 
space in the old one, its value will remain nearly at par ; — 
nearly, I say, because gold and silver coin, being capable of 
exportation, which paper money is not, will always command 
a sfight premium. And the difference indicated by this pre- 
mium will act still further in favor of the new currency ; be- 
cause, for reasons already explained, the depreciated or over- 
valued money will drive out even what remained of the perfect 
and sound currency, and take the whole circulation to itself. 

Suppose, for instance, that the currency of the country in its 
normal condition is equal to 200 millions. If, then, in the 
panic created by a revolution, 80 millions should be hoarded 
or sent abroad, the insurgent government will be able to issue 
80 millions in paper at once, which will circulate at a discount 
of not more than 2 or 3 per cent. As every person will then 
prefer to pay his debts and make purchases with paper rather 
than coin, inasmuch as he will thereby save 2 or 3 per cent, 
the remaining portion of the sound cm'rency will be gradually 
collected and sent abroad, and the new government will be en- 
abled to issue 120 millions more in specie, without doing any 
other injury than raising the prices of commodities 2 or 3 per 
cent, — a difference too slight to be noticed. 

Any revolutionary government, therefore, though it should 
inherit, as is most probable, only an empty treasury, may at 



380 PAPER MONEY. 

once obtain funds equal in amount to the whole circulation of 
the country, by merely issuing paper money to this extent. 
Still further : this issue, coming immediately after a period of 
violent contraction of the currency, and of consequent low 
prices, inability to realize property or collect debts, general 
want of credit, and widely spread bankruptcy, will have the 
effect to raise prices again, to restore credit, to animate com- 
merce anew, and to diffuse through the whole country the 
glow of returning prosperity. All this will operate to the ad- 
vantage of the new government, and the revolutionary fever 
of the people will rise higher than ever. Yet again : as this 
paper money, now in universal use, depends solely upon the 
faith of the revolutionary government, whose engagements, it 
is feared, would not be respected by the former authorities, 
should they be restored to power, every person in the country 
has an interest in resisting such a restoration, and supporting 
the cause of the insurgents. It is thus that a heavy national 
debt and a large depreciated paper currency, such as exist in 
Austria at the present day, though to a superficial glance they 
may appear as sources of weakness in the government, are in 
truth the pillars of its strength. Every capitalist, every person 
who has any property to lose, under such circumstances, will 
resist a revolution to the death, fearing that the successful in- 
surgents would wipe out the debt with a sponge, and obtain 
room for a new batch of paper money by repudiating the for- 
mer issue. Without its enormous national debt, it may be 
doubted whether even the government of Great Britain would 
have resisted as successfully as it did the political convulsions 
of the memorable year 1848. As it was, every stockholder 
and every shopkeeper in London armed himself as a special 
constable, to resist the ragged army of proletaries who assem- 
bled on Kennington Common in April of that year. 

Could the revolutionists stop here, then, in their issue of 
paper money, all would be well. Unfortunately they cannot 
stop. There is a necessity of lavish expenditure in a revolu- 
tion, especially if the exigencies of a civil or foreign war are 
added to the other demands on the treasury. Having put 
forth paper money enough to fill up the whole circulation of 
the country, and being intoxicated with the brilliant success of 
this measure, the needy government finds itself compelled, not 



PAPER MONEY. 381 

unwillingly, to issue more ; and then, inevitably, marked de- 
preciation ensues. John Adams stated the theory of this sub- 
ject with perfect correctness seventy-five years ago, when his 
own country was affording a striking illustration of the truth 
of his doctrine. " The amount of ordinary commerce, external 
and internal, of a country," he says, " may be computed at a 
fixed sum. A certain sum of money is necessary to circulate 
among the society in order to carry on their business. This 
precise sum is discoverable by calculation, and reducible to cer- 
tainty. You may emit paper or any other currency for this 
purpose, until you reach this rule, and it will not depreciate. 
After you exceed this rule, it will depreciate ; and no power or 
act of legislation hitherto invented can prevent it. In the case 
of paper, if you go on emitting for ever, the whole mass will be 
worth no more than that was which was emitted within the 
rule." * 

In the case already supposed, of the ordinary currency 
amounting to 200 millions, should paper money be issued to 
the extent of 400 millions, the certain result will be a deprecia- 
tion of fifty per cent ; that is, no greater value will remain in 
the hands of the community than 200 millions, though the 
government has nominally paid off twice as much. Here, 
then, taxation begins ; by issuing 400 millions when only half 
as much was needed, the government has really taxed the com- 
munity to the extent of 200 millions, less the depreciation to 
which each portion of this sum was subject at the date of its 
emission. If, for instance, 40 millions of this sum were issued 
before the depreciation began, a second 40 millions when the 
depreciation was at 12| per cent, a third 40 miUions when it 
was at 25, a fourth at 37|, and a fifth at 50 per cent, the 'tax 
really levied upon the people amounted to 150 millions. As 
the depreciation goes on, moreover, the necessity of issuing 
more paper rapidly increases ; and hence it is, that, when the 
fall in value has once begun, it seems to continue and enlarge 
with frightful rapidity. When the depreciation, for instance, 
is at 50 per cent, the prices of all commodities are doubled ; 
government must pay twice as much in wages and salaries, 
and for provisions and munitions of war, and must therefore 

* John Adams's Works, Vol. VII. p. 195. 



382 PAPER MONEY. , 

pay out 200 millions to do the work which 100 millions did 
before. At the same time, its resources are diminished; all 
payments to it, being made in the depreciated currency, are 
worth but half their nominal amount. "When the currency 
has fallen to one fourth the value of coin, 400 must be issued 
where 100 formerly sufficed ; and the deficit in the receipts be- 
ing added, the proportion may be even five or six for one. 

It must not be inferred, however, that this rapid depreciation 
of the currency will seem to impede traffic or to paralyze in- 
dustry. On the conti'ary — at least until the depreciation has 
become extreme, say 500 for 1 — commerce and labor will be 
galvanized into unnatural activity, and a deceitful glow of an- 
imation and success, like the flush of a fever, will appear to 
pervade the nation. Prices rise, of course, as rapidly as the 
currency falls ; property which was sold for 100 to-day, will 
command 500 or 1,000 to-morrow. At the same time, money 
is superabundant, and those who were once too poor to buy 
can now easily obtain the means of purchase. The pressure 
of debt is also lessened ; obligations are cancelled by paying 
back what is actually but one half, one fourth, or a still smaller 
fraction, of the real value which was due. Ease in getting rid 
of old debts only creates a thirst for contracting new ones. 
Commerce is thus stimulated, while the basis on which it rests 
is every day becoming less secure. A reckless spirit of specu- 
lation, akin to gambling in its character and results, appears 
to have seized the greater part of the community. The circu- 
lation of Continental money in America, in 1779, as we are 
told by a writer of that day, was " never more brisk and quick, 
than when its exchange was 500 for 1." And M. Thiers, 
speaking of the depreciation of the French assignats in 1795, 
says, that to the horrors of famine were added the scandals of 
reckless speculation and stockjobbing, the sale of merchandise 
which had no existence, as the pretended traffic was only bet- 
ting upon prices, and the diffusion of a taste for luxury, dissi- 
pation, and excess, which is the invariable concomitant of 
sudden mutations of fortune. 

We are now prepared to explain the great difference be- 
tween convertible bank currency and inconvertible bills, or 
paper money properly so called, — that the latter is liable to 
issue in excess, and consequent depreciation, while the former 



PAPER MONEY. 383 

is not. We have seen that the former is necessarily liable to 
perpetual reflux upon the institutions which issue it, the 
amount remaining in active circulation not depending at all 
upon the wishes of the banks, but upon the convenience of the 
public. This reflux takes place in three forms, through lodge- 
ments in deposit, the repayment of loans and discounts, and 
actual presentation at the counter for redemption in coin. 
These are but three forms of payment to the banks, and in the 
long run, they must equal, and for a time, they may easily ex- 
ceed, the payments out of the banks. It is for the public, and 
not for the banks, to decide what portion of this reflux shall 
consist of bills and what of specie, and, consequently, what 
portion of each shall remain in circulation. The banks can do 
nothing to affect this result. Let them pay out then own bills 
as fast as they may, and in what quantities they may, the in- 
flowing stream will be of corresponding depth and volume. 
And they peril their own safety even by a slight tendency to 
excess ; for as they can issue their bills, in the majority of 
cases, only by discounting the notes of individuals that will not 
mature for some weeks, while their own bUls may be brought 
back the next day, the reflux of any excessive issue might ea- 
sily exhaust their specie reserve, and oblige them to suspend 
payment. And the public are sure to decide rightly what por- 
tion of the reflux shall consist of bank-bills, and when the re- 
flux itself shall be augmented. If the cm^rency has become 
redundant because trade for a time has languished, and less 
money is needed to effect the fewer exchanges which take 
place, then spare funds will accumulate in the hands of the 
dealers ; and these funds, because there is nothing else to be 
done with them, will be lodged on deposit in the banks. But 
if the currency be redundant because there has been a specu- 
lative fever, which has raised the prices of commodities, and 
therefore called for more money wherewith to circulate them, 
then there will be a demand for specie to send abroad, where 
commodities can be had on cheaper terms ; and there will be 
a reflux of the bills in order to obtain the specie. Those who 
fear an excessive issue of convertible bank-bills, might as well 
apprehend that Lake Erie would overflow its banks and flood 
aU the surrounding country, because it is constantly receiving 
the sm-plus waters of the three upper lakes and of innumer- 



884 



PAPER MONEY. 



able tributary streams. They forget that the average level of 
the lake depends, not upon the quantity of water flowing into 
it, but upon the quantity that flows out of it over Niagara 
Falls ; and that no cause could affect the level except by rais- 
ing or lowering the bar at the opening of Niagara River, which 
regulates the rate of the efflux. 

But with paper money it is not so. In this case, there is 
no reffux and no occasion for repayment, so that the quantity 
in circulation depends exclusively upon the quantity emitted. 
The currency that is supplied with inconvertible paper is like 
the Dead Sea, which receives the waters of the Jordan, but 
has no efflux ; augment the flow into it, and the level must 
rise. The government pays out its bills of credit, or paper 
money, in discharge of its debts, in the purchase of commodi- 
ties, and in the payment of wages and salaries ; in neither of 
these cases does it create any necessity for repayment, so as 
to bring the bills back again. True, the paper money is re- 
ceivable by the state in payment of taxes and other govern- 
ment dues ; but then there will be no necessity of issuing it 
at all, unless the expenditures largely exceed the receipts ; and 
it is the amount of this excess, or the extent of the annual de- 
ficit, — very large in a revolutionary period, or in case of a civil 
war, — which determines the amount of the annual addition 
to the inconvertible paper currency. As this currency is not 
available for remittances abroad, no diminution of it is possi- 
ble through the purchase of commodities in foreign lands. 
Every exit and channel of reflux being thus dammed up, the 
emission of every additional bill must advance the period when 
depreciation will begin, or increase the rate of that deprecia- 
tion. To adopt Mr. Tooke's language, the distinction be- 
tween bank currency and government paper money is, that the 
latter is ^^paid aivaij and is not returnable to the issuer, whereas 
the bank-notes are only lent, and are returnable to the issuers^ 
Because the paper money cannot be returned, it remains in 
circulation as an agent to raise prices, so that it " will consti- 
tute a fresh source of demand, and must be forced into and 
permeate all the channels of circulation." 

If the banks suspend specie payment, their bills become 
inconvertible, and are thus far assimilated to paper money. 
Still, though one channel of reflux is thus dammed up, the bills 



PAPER MONEY. 385 

being no longer presentable for redemption in coin, they can 
stiU be returned to the banks on deposit, and in repayment of 
the loans and discounts. Bank paper money is thus distin- 
guished from government paper money, this last not being re- 
turnable at all. It is expended in the purchase of naval and 
military stores, in building ships, in constructing public edifi- 
ces, and in the payment of services performed for the state, no 
means being usually taken to insure its ultimate return to the 
exchequer. The bank issues, on the other hand, being made 
only in the discount of approved promissory notes of short 
date, naturally return after a short interval, even if they are not 
redeemable in specie. So long, then, as the banks confine 
themselves to their proper functions, and do not squander their 
funds, or let them out on doubtful security, there is no reason 
why, even after a suspension, their currency should be depre- 
ciated, except to a very small extent. Thus, the Bank of Eng- 
land suspended specie payments in 1797, but its notes re- 
mained at par, or within two per cent of par, till 1801. Then, 
indeed, a heavy demand for gold to be exported, on account of 
the large purchases of corn which were rendered necessary by 
the failure of the English crops, and of large expenditures by 
the British government in prosecution of the war, made specie 
rise to a premium, or, what is the same thing, the bank-notes 
to be depreciated seven or eight per cent. These disturbing 
causes being removed, the currency rose again in 1803, and 
continued at a point only 2| per cent below par tiU 1809. 

It is unnecessary to dwell upon this point, however. A sus- 
pension of specie payments by the banks is not Kkely to be 
again sanctioned, either by law or public opinion, for any long 
period. It is enough to have shown, that government expen- 
diture and the issue of government paper money are the chief 
causes of a depreciation of the currency, and that the banks 
cannot contribute much to this result except by becoming the 
agents of government, or by misconduct which proceeds rather 
from fraud than ignorance or involuntary error. 

I return to a view of the consequences of an excessive de- 
preciation of paper money, and of the measures which then 
become necessary for restoring the currency to a specie stand- 
ard. As soon as the bills have fallen considerably in value, 
two prices are established for commodities, one in specie and 
33 



386 PAPER MONEY. 

the other in paper currency, the difference between the two 
marking the rate of depreciation. When this difference has 
become inordinate, the progress of the depreciation is most 
rapid, the value of the currency fluctuating so suddenly and 
largely, that most persons are unwilling to receive it on any 
terms. The rate to-day may be 500, and to-morrow 600, for 
1 ; under these circumstances, also, the rate will be found to 
vary in different localities, and be variously estimated by dif- 
ferent tradesmen. So much confusion and uncertainty are 
thus created, that, by a spontaneous movement of the whole 
community, the paper currency is discarded altogether, the 
price in specie is the only one that will be received in payment 
for commodities ; and if the paper has not already ceased, 
through the action of the legislatm*e, to be legal tender, ac- 
knowledgments of debts are made with an express stipulation 
that the payment shall be in specie, or some other commodity 
of fixed value. Such a restoration of the standard seldom re- 
quires any action of the government ; it is the voluntary and 
united act of the whole people, having been dictated by the 
necessities of the case. 

The immediate consequences of this reversion to a specie 
currency are in striking contrast with the results, already no- 
ticed, of the first issue of paper money and its gradual depre- 
ciation. The latter seemed to animate industry and com- 
merce to relieve the pressure of debt, and to supply abundant 
funds for enterprises which must otherwise have been aban- 
doned ; but the former seems to carry the community back, by 
a cruel revulsion, to worse evils than those from which it had 
apparently been rescued. It is the state of collapse that some- 
times follows the excitement and delirium of a fever. It is 
now seen that the issue of paper money is really a desperate 
measure, that the relief which it promises is but temporary, 
and that the prosperity which it causes is wholly fallacious. 
As money rises from a low valuation to a higher one, wages 
are depressed, prices fall, trade stagnates, and bankruptcies be- 
come numerous ; and these evils are the more serious, as the 
depreciation was great, and the revulsion sudden. Formerly, 
it was the creditors who were injured, being obliged to receive 
payment in a currency less valuable than the one in which the 
debt was contracted ; now the debtors, who are more numer- 



PAPER MONEY. 387 

ous and less able to bear losses, must suifer harm and wrong, 
being required to pay more than they received, and to do this 
at a time when, from the depression of wages, the abandon- 
ment of industrial and commercial undertakings, and the fall 
of profits, they are least able to bear an additional burden. 
All these hardships are summarily attributed to one cause, 
more frequently spoken of than understood, — "a scarcity of 
money " ; it means only a higher real value of money, the 
prostration of credit, the consequent inactivity of capital, and 
general despondency. 

As the prosperity growing out of the earlier part of the ex- 
periment with paper money strengthened the hands of the rev- 
olutionary government, so the disasters and suffering attendant 
upon its close create a reaction, and weaken the cause of the 
insurgents. The popular discontent thus generated tends 
either to the reestablishment of the old form of government, 
or to anarchy. 

It was so at the close of the Revolutionary war in this coun- 
try, when both the people and the army, exhausted by the 
efforts and sacrifices which they had made, bankrupt in fortune, 
and seeing no resources open to them, were for a while on the 
point of turning their arms against each other. Nothing but 
the moderation, wisdom, and firmness of their great Com- 
mander-in-chief saved the country from the horrors of a mili- 
tary usurpation. The establishment of peace seemed only to 
render matters worse. The courts then began in earnest to 
enforce the settlement of accounts and the payment of debts ; 
and the property seized for this purpose being sold at a great 
sacrifice, its former owners found themselves homeless and 
penniless, and still burdened with the greater part of their 
pecuniary obligations. The unthinking multitude then began 
to clamor for " stop-laws," or enactments to delay process 
and execution after judgment had been obtained for debt; 
for " tender-laws," compelling the creditor to accept in satisfac- 
tion of his claim any property of the debtor at a fixed valua- 
tion or appraisement, instead of offering it at auction for cash, 
when it would bring but a trifle ; and above all, for a new 
and large issue of paper money, the rapid depreciation of 
which would enable debtors to get rid of their obligations on 
very easy terms. Several States were weak enough to yield 



388 PAPER MONEY. 

to these demands, and thus only prolonged the period of 
uncertainty, confusion, and suffering, besides aggravating the 
evil by injustice. Massachusetts resisted, seeing that really 
the best and easiest mode of escaping present difficulties was 
to adhere resolutely to a specie cm-rency, and to enforce a 
speedy settlement of all outstanding claims, so that indus- 
try and commerce might at last revive, without further im- 
pediment or drawback from the past. The consequence 
was, that a formidable rebellion broke out in this State in 
1786, the avowed object of the insurgents being to close by 
violence the courts of law, thus putting a stop to legal meas- 
ures for the collection of debts, and to compel the government 
to make a fresh issue of depreciating currency. The insurrec- 
tion was suppressed with difficulty, and the terror which it in- 
spired had this indirect good result, — that it animated and 
strengthened the general effort which was then made to create 
a stable government for the whole Union. This effort led to 
the adoption of the Federal Constitution, one article of which, 
as already noticed, prohibits the emission of " bills of credit " 
and the enactment of " tender-laws." 

In France, the final abandonment of the depreciated assig-- 
■nats and mandats, and the difficulties in which the government 
was thus involved, had consequences equally serious. The suf- 
ferings of the people exasperated them alike against the Revo- 
lution and the authors of it, whom they had so recently followed 
into the wildest excesses of Jacobinism. A reaction took place 
in favor of the ancient dynasty, which was so general, that the 
royalists obtained the command of the elections, and seemed 
likely to obtain their end by a peaceable vote of the two Coun- 
cils or legislative assembhes. The Directory, indeed, aided by 
the army, which was still republican in sentiment, prevented 
this result through the coup d'etat of the 18th Fructidor, 1797 ; 
they seized the leading royalist deputies, and sentenced them 
to deportation. But the triumph was dearly bought, as it 
marked the ascendency of mffitary power, and foreshadowed 
the dominion of Napoleon. 

It follows from this whole review of the subject of paper 
money, which I have intentionally based, as far as possible, 
upon historical facts rather than abstract reasoning, that the 
depreciation of it is attributable solely to excess in its issue. 



PAPER MONEY. 389 

If this excess coUld be prevented, that is, if the amount of pa-: 
per currency could be kept precisely equal to what the amount 
of metallic currency would be in case there were no paper in 
circulation, then there would be no depreciation of the paper ; 
nay, the paper might even command a premium over coin, if 
the aggregate value of it were made less than what the coin 
would amount to, and if it were also possible to prevent the 
importation of specie. Money acquires the power of exercis- 
ing its functions, not from any intrinsic qualities that it pos- 
sesses, but solely from convention. To adopt Mr. Mill's lan- 
guage, " convention is quite sufficient to confer the power, 
since nothing more is needful to make a person accept any- 
thing as money, and even at any arbitrary value, than the per- 
suasion that it will be taken from him on the same terms by 
others." The value of paper money, not depending at all 
upon its cost of production, is regulated solely by its quantity. 
A certain determinable sum of money is needed in every na- 
tion to effect its current exchanges, and to maintain prices at 
an equilibrium with the average prices of commodities through- 
out the commercial world. Coin being banished, if the issue 
of paper money is less than this sum, the paper will command 
a premium ; if greater, it will be at a discount. 

The difficulty is, that this sum is a varying quantity, depend- 
ing upon the state of trade, of public confidence, of the foreign 
exchanges as affected by the relative amounts of the exports 
and imports, and other circumstances which cannot easily be 
determined. The difference in value between the coin and the 
paper money is usually taken as a measure of the depreciation 
of the latter ; and so it is, if the value of gold and silver be 
taken as the standard. But it should not be forgotten that 
this standard itself may vary, not only in accordance with the 
greater or less productiveness of the mines whence the pre- 
cious metals are obtained, but also according to the varying 
demand for gold and silver in different locahties. A general 
war in Europe, causing large sums of specie to be moved 
about in the military chests of great armies, and impeding the 
intercourse by sea which is the only means of equalizing pri- 
ces ; the consternation produced by revolutionary movements 
that tend to anarchy, or by the progress of invasion from 
abroad, causing large amounts of money to be hoarded ; and 
33* 



390 PAPER MONEY. 

a great failure of the crops, making heavy importations of 
grain necessary, which must be paid for in specie, — these and 
other circumstances may raise the value of specie in different 
places much above its average, and retain it at the advanced 
valuation for a considerable time. It is the opinion of Mr. 
Tooke and other well-informed writers, that the difference be- 
tween Bank of England notes and bullion from 1810 to 1817, 
amounting at times to 25 per cent, " was not greater than the 
enhancement in value of gold itself, and that the paper, though 
depreciated relatively to the then value of gold, did not sink 
below the ordinary value, at other times, either of gold or of a 
convertible paper." There was certainly no excessive issue of 
bank-notes at that epoch enough to account for their deprecia- 
tion ; the circulation of the Bank of England, indeed, was in- 
creased, but no more so than was necessary to fill up the gap 
in the currency caused by the destruction of a large amount of 
country bank paper, and to accommodate the rapidly increas- 
ing business of the country. 

Reasoning upon these principles, Mr. Ricardo published, in 
1816, his " Proposals for an Economical and Secure Cur- 
rency." The plan was, to supersede the use of gold coin alto- 
gether, by requiring the Bank of England to redeem its notes 
by the payment, not of coin, but of gold bars, or bullion, of the 
standard purity, at the mint price of gold (X 3 175. 10|f/. an 
ounce), or at such other price as Parliament should determine. 
These gold bars, or ingots, not being fitted for circulation as 
currency, would not be called for except when they were 
needed for exportation ; but if the issue of bank-notes ever 
became excessive, so that they tended to depreciation, the gold 
would be then needed for export, and the issue would be 
checked, or the notes be poured back upon the Bank. Thus 
the heavy expense of a metallic currency would be saved, and 
full security would be given that the value of the paper cur- 
rency would always correspond with that of gold. 

Government adopted this scheme as a portion of its plan for 
the gradual resumption of specie payments. The act for this 
purpose, commonly known as Peel's Bill, was passed in 1819. 
It required the Bank, from the 1st of February, 1820, to the 
1st of October in the same year, to pay its notes in bullion of 
standard fineness, at the rate of <£ 4 Is. per ounce. From the 



PAPER MONEY. 391 

1st of October, 1820, to the 1st of May, 1821, it was to pay 
bullion at the rate of X 3 195. Qd. per ounce ; and after this 
last date, it was to redeem its notes in bullion at the old mint 
price of ■£ 3 17s. lOyi. an ounce. Two years afterwards, it 
was to pay coin at this price, the resumption being then com- 
plete. But as the Bank had abundance of coin in its vaults, 
and as the forgery of the one-pound notes, a large amount of 
which it was necessary by this scheme to keep in circulation as 
a substitute for guineas or sovereigns, caused much trouble 
and uncertainty, the Directors anticipated the operation of the 
act by beginning to redeem the notes in coin at the full price 
some time before the date specified. 

The plan of gradual resumption by successive steps is a 
good one, as it relieves commerce from the violent shock which 
it would experience, if the currency were suddenly raised from 
a state of considerable depreciation to par. Should another 
suspension of specie payments by the banks of this country 
unhappily take place, the best policy for the legislature would 
be, to sanction the depreciation at its actual amount for the 
current month, on condition that the banks should immedi- 
ately pay specie for their notes at this depreciated rate, and 
advance it two or three per cent each successive month, till it 
was brought again to par. Confidence would thus be imme- 
diately restored, further depreciation would be impossible, a 
time would at once be fixed for resumption, while the run 
upon the banks would cease almost entirely, as each holder of 
the notes would perceive that he would gain two or three per 
cent a month by delaying their presentation. 



392 THE DECLINE IN THE VALUE OF MONEY. 



CHAPTER XXII. 

THE DECLINE IN THE VALUE OF MONEY. 

6' 

It is now generally admitted that a great revolution is tak- 
ing place in the commercial and monetary world, caused by a 
considerable decline in the value of money, — a revolution the 
like of which has not occurred for more than two centuries, 
and of which there is but one parallel in all history. The two 
precious metals, after maintaining a nearly uniform value for 
a very long period, are now, owing to a sudden and immense 
increase in the supply of gold, undergoing a great change, not 
only in their relation to each other, but in their value as com- 
pared with that of all other commodities in the world. This 
change is not to be a merely nominal one. It might seem, in- 
deed, that, as the precious metals are a universal measure of 
value, any depreciation of them would amount only to a gen- 
eral rise of prices, all commodities being affected in precisely 
the same ratio, so that their relation to each other would re- 
main unaltered. This is true ; such a change would not ben- 
efit or injure any one. But all stipulations for the payment of 
money at a future day will be really affected to the full extent 
of the change which the precious metals may undergo while 
the contract is outstanding. A single instance will enable us 
to see the vast importance, in this respect, of a depreciation in 
the value of money. The national debt of Great Britain, — 
that great incubus which has been supposed to be immovably 
fixed upon the shoulders of the nation, and which has been 
properly regarded as putting the English people under very 
heavy bonds to keep the peace, as any considerable enlarge- 
ment of it by other wars would make the burden of paying its 
annual interest well-nigh intolerable, — this mountain of debt 
must shrink comparatively into a mole-hill. It may all be paid 
off in a few years, with as little effort as it now costs to pay 
merely the interest. A revolution which will have this effect, 
and a proportional one on all other contracts to deliver money 
at a future day, may well be deemed a momentous one. 



THE DECLINE IN THE VALUE OF MONEY. 393 

The first points to be considered are, the probable extent of 
the depreciation, and the time within which it may be ex- 
pected. Fortunately, there is one example on record of a per- 
fectly similar change, the study of which will enable us to see 
the ti-ue nature and probable limits of the present revolution. 
I refer, of course, to the effect produced in Europe by the great 
supplies obtained from the American mines in the sixteenth 
and seventeenth centuries. 

We do not need to know the whole amount of gold and sil- 
ver actually in use in the world, either as coin or plate, before 
the discovery of America. It is a well-ascertained principle, 
that the permanent or average value of a commodity depends, 
not on the larger or smaller stock of it already in being, but on 
the average cost of its production. If a pound of iron is worth 
only one-thousandth part as much as a pound of silver, it is 
not because there are a thousand times as much iron now in 
use as silver, but because it requires a thousand times as much 
labor to raise an additional pound of silver from the mines, as 
it does a pound of iron. If the stock already in use be ever so 
large, the value of it cannot permanently fall below the cost of 
production ; for as the labor of obtaining more would not be 
remunerated, no more would be produced ; and the constant 
consumption would steadily diminish the stock, till the value 
of what remained would rise high enough to pay the laborer 
for the effort of procuring a fresh supply. On the other hand, 
if the stock is ever so small, no one will pay more for any por- 
tion of it than it would cost him to raise or manufacture the 
article for himself. The steady average value, then, the point 
about which the price oscillates, never departing from it far in 
either direction, is the cost of production ; and a tolerably ac- 
curate measure of this cost, so long as the demand remains 
the same, is the quantity annually produced. 

It is important to recollect this, as many persons have been 
led to believe, because the very great addition made by the 
Californian and Australian washings to the stock of gold did 
not immediately and sensibly affect the value of that metal, 
that no future depreciation of it is to be expected. But till it 
is ascertained that this is a permanent increase of supply, and 
that the newly discovered auriferous districts will continue for 
many years to yield, not probably as much as they have done, 



394 THE DECLINE IN THE VALUE OF MONEY. 

but enough to make the former sources of supply appear com- 
paratively insignificant, and thus to diminish the average cost 
of production, the change of value will be too small to be gen- 
erally appreciated. 

Down to the time of Columbus, the average annual supply 
of the two precious metals certainly did not exceed three mil- 
lions of dollars.* How much was this increased by the sup- 
plies from America during the sixteenth and seventeenth cen- 
turies ? Humboldt is here the only authority generally relied 
upon ; and as he made very extensive and laborious investiga- 
tions, was well acquainted with all that had been written upon 
the subject, had ready access to official sources of information 
unknown to former writers, was well versed in the theory and 
practice of mining, and critically examined some of the most 
celebrated mines, it is probable that his statements are a very 
near approximation to the truth. He tells us that the annual 
supphes of the precious metals obtained from America were 
as follows. 

America discovered in 1492. onan^aTen^. 

From 1492 to 1500 250,000 

" 1500 to 1545 3,000,000 

" 1545 to 1600 11,000,000 

" 1600 to 1700 16,000,000 

" 1700 to 1750 22,500,000 

" 1750 to 1803 35,300,000 

Hence it appears, if we suppose the Old World continued 
to furnish as much as before, that in the first half of the six- 
teenth century the supplies from America had doubled the 
annual product. In the latter half of this century, they ren- 
dered it nearly five times as large. In the seventeenth century, 
it became over six times, and in the eighteenth, over eleven 
times, larger than it was before 1500. The great increase in 
the latter half of the sixteenth century was owing to the dis- 
covery of the mines of Potosi, which were first systematically 
worked in 1545. 

How great and how rapid a depreciation of the value of 
money was caused by this vast increase of supply ? Here, 

* Humboldt estimates that all the European and Asiatic mines, as late as 1800, 
did not yield annually more than five millions of dollars. 



THE DECLINE IN THE VALUE OF MONEY. 395 

again, the means for forming an opinion are very imperfect, 
being chiefly an extensive and laborious comparison of the 
prices, at different periods, of certain leading commodities, 
which are in uniform and perpetual demand. The staple arti- 
cles of food, such as grain and meat, are the best for this pur- 
pose, as it may be presumed that they are not often produced 
in larger quantities than are wanted, and as nearly the same 
amount of labor is required for the production of a given quan- 
tity of them in one century as in another. If a genuine record 
can be obtained of the prices actually paid, at one place, for 
such articles, for a long series of years, the variations, if any, in 
the value of the precious metals during those years may be 
deduced from it, allowance being made, of course, for any 
alterations of the quantity of pure metal passing under the 
same denomination of coin, and for the state of the coinage, 
whether worn and clipped, or fresh and perfect. Such a record 
is found in the accounts of Eton College, and in the lists of 
prices collected by Bishop Fleetwood and M. Dupre de St. 
Maur. The conclusions deduced by various writers from these 
accounts do not agree very well; but the variations do not 
materially affect the result for the purpose which we now have 
in view. We select the computations made by Adam Smith, 
as they were made with great care and knowledge of the sub- 
ject, and have been generally accepted by later writers on Po- 
litical Economy. 

Adam Smith says the American mines do not seem to have 
produced any effect upon prices till after 1570, though the 
mines of Potosi had then been actively worked for a quarter 
of a century. Between 1595 and 1620, silver fell to about one 
third of its former value ; and about 1636, it had fallen to one 
fourth part of that value, where it has remained with little 
variation almost to the present day. Before 1570, a quarter 
(eight bushels) of wheat of middle quality was sold in Eng- 
land, on an average of a long period of years, for about two 
ounces of pure silver ; about 1600, (still taking an average of 
many years, so that the very good and very bad crops may 
offset each other,) the price had advanced to a little over six 
ounces ; about 1636, it had risen to nearly eight ounces. The 
average value of a quarter of wheat in England, from the 
repeal of the Corn Laws up to 1852, did not vary much from 




IT 



396 THE DECLINE IN THE VALUE OF MONEY. 

forty-three shillings, which contain almost exactly eight ounces 
of pure silver. 

Comparing these results with the table already given of the 
annual product of the precious metals, we find, — 1. That doKr 
bling" the annual product of 7noney for half a century had no effect 
on its value, or did not raise prices at all; 2. That making' the 
annual product five times as great had no effect upon its value 
for 25 years, after ivhich time, however, the value gradually fell 
to one third of what it had been ; 3. That about 36 years after the 
annual j)roduct had become six times as great, the value had fallen 
to one fourth of its former amount; 4. That from 1636 to 1848, 
or 212 years, the value of the precious metals underwent no ma- 
terial alteration, though meanwhile the annual supply of them 
had become eleven or twelve times greater than what it had been 
before the discovery of America* 

These facts satisfactorily support two general conclusions : 
— 1. That a very considerable increase of the supply may 
take place without any perceptible change in the value; 
2. That the alteration, when it does occur, is very slow and 
gradual, the variation from one year to another being hardly 
perceptible. 

Such was the result of the only experiiuent recorded in his- 
tory, which enables us to form any conjecture as to the prob- 
able effect upon the money-market of the vast addition which 
has been made to the annual supply of gold within a few years 
by the discoveries in Russia, California, and Australia. To 
make the comparison clear and obvious, I have stated the re- 
sults in their broadest form, or with the fewest limitations and 
doubts. There will afterwards be considerations to suggest 
which will modify the conclusions to be drawn from these 
statements. 

Let us now see how great have been the changes in the an- 
nual supply during the present century. About the year 1800, 

* According to J. B. Say, however, whose conclusions are based upon the lists of 
prices collected by M. Dupre de St. Maur, though they do not appear to have been 
so carefully worked out as those of Smith, silver fell to one half of its former value 
as early as 1536, and to one fourth of that value as early as 1602. remaining 
unchanged at this point till 1800. But I cannot find any satisfactory evidence 
that the value of silver was at all affected until the mines of Potosi for a consider- 
able period had been pouring out their vast supplies, — that is, for some years after 
1545. 



THE DECLINE IN THE VALUE OF MONEY. 397 

the annual supply of gold amounted to $ 12,648,000, and of 
silver to $ 36,289,008 ; making a total of $ 48,937,008. There 
is reason to believe that the large portion of this product which 
was furnished by the American mines was rather increased 
than diminished up to 1810, when the contest began which 
finally produced the independence of the Spanish American 
colonies. The revolutionary troubles, and the proscription of 
the old Spanish families to whom the mines chiefly belonged, 
caused the works in many cases to be abandoned, and there 
was a great falling off of the product. Mr. Jacob estimated, 
that, for the twenty years ending with 1829, they did not yield 
annually over $ 20,000,000, or considerably less than half of 
their former product. But he evidently exaggerates the falHng 
off; and the estimate which Mr. McCulloch formed in 1834 
may be safely extended to the whole period, making the an- 
nual supply from all parts of the earth to be $ 30,000,000. 
Soon after 1834, the gold product of the Russian mines and 
washings began to sweU the amount very rapidly, so that Mr. 
McCulloch affirmed, in 1845, that, if the supply from this 
source should continue a few years longer, it would cause a 
fall in the value of gold as compared with silver and with 
everything else. In 1847, it had raised the annual supply from 
all parts of the world to $ 67,000,000, making it nearly one 
third larger than it had been in 1800. But what was this to 
the astoundirtg results produced by the discovery of the Cali- 
fornian and Australian gold washings ? The gold obtained in 
Australia alone, in 1852, was estimated at 330,000 pounds 
Troy ; and the supply from Cahfornia that year is believed to 
have been 252,000 pounds Troy. It has turned out, indeed, 
that 1852 was far the most productive year, and there has been 
a considerable faUing off since, especially in Australia. Still, 
it is safe to estimate the total product of these two countries, 
in 1854, at 350,000 pounds ; and if the supply from Russia 
and other sources be added, the aggregate is nearly 482,000 
pounds, or about 1 119,536,000. By a curious coincidence, 
the annual supply of silver from the Mexican and South 
American mines has been largely augmented during the last 
ten years, the total for the whole world being one third larger 
in 1850 than it was in 1845 ; the aggregate amount mined in 
the former year was nearly 1 44,000,000. Putting these two 
34 



398 



THE DECLINE IN THE VALUE OF MONEY. 



sums together, we have the value of gold and silver obtained 
from the mines in 1854 equal to $ 163,536,000.* 

The results now obtained may be put into a tabular form 
for the purposes of comparison. 

Annual product of the 
two precious metals. 

From 1800 to 1810 $49,000,000 

" 1810 to 1836 30,000,000 

1847 67,000,000 

1854 163,536,000 

The supply for 1854, then, was five and a half times larger 
than the annual product twenty years ago, and about three 
and one third times larger than the greatest amount obtained 
in any one year before 1840. Unless new gold fields should 
be discovered, however, of which there seems little probability 
at present, it is certain that the maximum supply was obtained 
in 1852, and that there has since been a very rapid and consid- 
erable falling off. While 718,000 pounds Troy were obtained 
in 1852, only 597,000 pounds formed the supply in 1853, and 
482,000 pounds was the estimate, probably an exaggerated 
one, for 1854, the diminution in tvvo years being nearly 33 per 
cent. In 1855, the supply was probably not more than half as 
great as in 1852. The falling off was even more sudden and 
marked in Australia than in California. In respect to silver, 
on the other hand, the supply is steadily but slowly on the in- 
crease, the most cautious estimates making the increase at 
least 2| per cent a year. The annual product of this metal is 
now estimated at very nearly $ 50,000,000, the chief portion 
of the increase being from Mexico and Chili. 

The great difference between the experiment which was 
tried two or three centuries ago, and that which is now in 
progi-ess, is, that in the former case far the greater part of the 
addition which was made to the world's stock of the precious 
metals was in silver, while most of the present increase is in 
gold. And this is a very important difference, as regards the 

* The estimates in this paragraph, except that I have sometimes used the nearest 
round numbers, are taken from J. D. Whitney's " Metallic Wealth of the United 
States described and compared with that of other Countries," (Philadelphia, 1854,) 
a work which contains a great deal of original information of much interest, and a 
careful digest of all the statistics of the subject that could be gleaned from recent 
publications of good authority both in Europe and America. 



THE DECLINE IN THE VALUE OF MONEY. 399 

question of the probable long continuance of the enlarged an- 
nual product. Silver is obtained by mining, and the veins 
which are worked are most frequently found to grow richer as 
they are followed into the bowels of the earth. The expense 
of working them increases as we descend, but the steadily in- 
creasing product is generally more than an offset for this en- 
larged cost. Gold, on the other hand, is generally obtained 
by washing from a superficial deposit of gravel and sand. It 
is chiefly found in what the geologists call " the drift," and in 
a stratum of it of no great thickness. Being thus spread out 
over a great extent of ground, and lying at or near the surface, 
almost any number of persons can be engaged in obtaining it 
without impeding each other's operations. If, also, as is the 
case in California, and to a great extent in Australia, the land 
in the auriferous district has been but imperfectly, or not at 
all, appropriated either by individuals or the government, — if 
it is, in the main, open to all comers, as the Great Bank is to 
aU fishermen, — then, large as the district may be, it is soon 
covered with gold-hunters. The most promising localities are 
quickly exhausted ; and then, every year, the labor of gather- 
ing the shining dust wiU increase, and the returns will dimin- 
ish. The experience of California is conclusive on this point. 
There can be no doubt that the whole amount obtained was 
considerably diminished after the number of washers was 
largely increased. True, the first search is generally imper- 
fect, and a second washing of the same gravel, with more care 
and method, may afterwards yield a fair profit. So, also, the 
solid rock, though it be tough quartz, in which the gold span- 
gles now found in the drift were originally imbedded, may be 
crushed and ground by heavy machinery, and a supply of au- 
riferous sand and gravel be thus obtained by artificial means, 
in addition to that which natural agencies have spread out 
over the surface. We may not anticipate, then, that the gold- 
fever will subside as rapidly as it rose, or that the gold-bearing 
districts will ever be completely exhausted. Still, two pro- 
cesses must always be more laborious and expensive than one, 
and the ground wiU no longer be open to every comer, though 
he has no other capital than a stout pair of arms, and a great 
capacity of enduring fatigue. "When the business is all re- 
duced to pounding up primary or metamorphic rocks with ma- 



400 THE DECLINE IN THE VALUE OF MONEY. 

chines which are yet to be invented, and to washing gravel for 
the second time, it is reasonable to expect, that, although cap- 
italists may get a fair return for their enterprise, the steam-ships 
win no longer bring home gold at the rate of three or four mil- 
lions a month. 

Taking all these considerations into view, together with the 
fact that we have now three great gold-bearing regions to de- 
pend upon, so distant from each other as Russia, California, 
and Australia, it will not be deemed incautious to anticipate, 
that the annual supply of the tivo precious metals ivill not fall 
below a Mmdred millions of dollars for many years, and that, 
within a quarter of a century, this supply will depreciate money 
to one half or one third of what was its value before 1850. 

In respect to the relative amounts by weight of the two pre- 
cious metals, it appears from the statistics already given, that, 
at the beginning of the present century, the annual product of 
gold was to that of silver as 1 to 43. In 1845, the supply from 
Russia having largely increased the quantity of gold, and the 
quantity of silver being somewhat less than in 1800, the ratio 
was only as 1 to 17. In 1852, the supply from the Californian 
and Australian gold-fields having obtained its maximum, the 
ratio of the two metals was as 1 to 4 ; in other words, if the 
annual product of the two metals had continued to be in this 
proportion, silver w^ould have risen certainly to one fourth, and 
probably, considering the more extensive use of the cheaper 
metal, to one half, of the value of gold. But the proportion 
has not been continued ; the amount of gold obtained in each 
year has rapidly fallen off, while that of silver has steadily in- 
creased, so that, in 1854, the ratio is probably as 1 to 6. The 
following table exhibits in one view these sudden changes in 
the relative quantities of the two metals, the figures indicating 
the weight in pounds Troy.* 

1800. 1845. 1852. 1854. 

Silver 2,337,300 2,183,500 2,958,296 3,106,210 
Gold 54,000 129,250 717,950 482,000 

Ratio 1 to 43 1 to 17 1 to 4 1 to 6^ 

In the sixteenth and seventeenth centuries, while the Mexican 

* In this table I have adopted the estimate of the -well-informed City correspond- 
ent, or commercial editor, of The Times, that since 1850 the annual product of sil- 
ver has been increasing at the rate, at least, of 2^ per cent a year. 



THE DECLINE IN THE VALUE OF MONEY. 401 

and South American mines were pouring out their treasures 
of silver, gold rose, from a comparative value only ten times 
as great as that of silver, to that which it had in 1848, of 
nearly 16 to 1. Only three years ago, then, it appeared rea- 
sonable to believe that the sudden and great increase in the 
annual product of gold, the annual product of silver being then 
supposed to be nearly stationary, would carry back the relative 
value of the two metals, not merely to its former point of 10 
to 1, but perhaps, as already mentioned, of 4, or even 2, to 1. 
It was even thought, that the rise in the comparative value of 
silver would be a tolerably exact measm'e of the depreciation 
of gold. Acting under this expectation, the government of 
Holland demonetized gold, and made sUver the standard of 
value, thinking thereby to avoid the threatened decline in the 
value of money. But as the annual supply of gold is now 
rapidly falling off, while that of silver is steadily increasing,* 
it appears probable that the relative value of the two wiU not 
be much affected, — that it will not become less than 10 or 12 
to 1, — while there will be a regular progressive diminution in 
the value of both. We cannot expect, then, that the whole 
decline in the value of money, or even a considerable portion 
of it, will be indicated by the variation in the relative values 
of gold and silver. 

Very good reasons have been given why the discovery of the 



* Humboldt declared, forty years ago, that the mines of New Spain contained sil- 
ver enough to deluge the world. A recent obseiwer, M. Dupont, who has published 
an excellent work on the production of the precious metals in Mexico, adopts the 
views of Humboldt, and adduces much additional testimony in confirmation of them. 
He describes several formations of rock, in which silver is almost sure to be found, 
and says, that although these formations are rare in the neighborhood of the city of 
Mexico, as we travel further northward they become of frequent occurrence, and, 
on crossing the principal chain of mountains towards the Gulf of California, the 
whole western slope of the Sonora Cordillera is composed of them. Improved 
methods of mining, also, have produced great results in some of the old localities, 
where the works had been given up for years, under the belief that it could not be 
continued with profit. Thus the Frasnillo mine, described in 1827 as an abandoned 
property, from which no hopes could be entertained, now yields more than 
$2,000,000 in silver annually. Erom another locality, in Zacatecas, which was 
thought to be exhausted about 1800, there was extracted, between 1827 and 1839, 
about 1 50 million francs' worth of silver. If an efficient government and a race of 
energetic emigrants should ever be introduced into Mexico, — as in case of its 
probable annexation to this country, — a revolution would take place in silver min- 
ing, and a fall in value of silver would be inevitable. 

34* 



402 THE DECLINE IN THE VALUE OF MONEY. 

American mines, in the sixteenth century, and the influx into 
the market of eleven times as much of the precious metals as 
before, did not reduce their value in the same proportion, but 
only in the ratio of 4 to 1 ; and why, when the ratio of the 
quantity of silver to that of gold was as 45 to 1, the ratio of 
their values was only as 1 to 15. It has already been observed, 
that in commerce and the arts, chiefly on account of its inferior 
cost, silver has been far more generally in use than gold. It 
has supplied much the larger portion of the currency of all na- 
tions. With some nations of the East, the Chinese for instance, 
gold is not used at all for this purpose. Even on the continent 
of Europe, silver is, in many cases, the only legal tender, gold 
being merely an article of merchandise, which is sold at an agio 
that fluctuates from week to week, though, of course, few peo- 
ple will refuse to receive it in payment. Silver must always be 
used for the smaller pieces of money, at least until gold has 
fallen much below its present value. Our gold one-dollar piece 
is inconveniently small, and will not probably come into general 
circulation, unless there should be some alteration in its form. 

The general principle is, that the value of money falls in 
precisely the same ratio in which its quantity is increased. If 
the whole money in circulation should be doubled, prices 
would be doubled ; if it was only increased one fourth, prices 
would rise one fourth. This is not the case with commodities 
generally, the value of which does not vary in the same ratio 
with the excess or deficiency of the supply ; because the desire, 
being for the thing itself, may be stronger or weaker, and the 
amount of what people are willing to expend upon it, being 
always limited, may be very unequally affected by the diffi- 
culty or facility of attainment. But money is desired as the 
means of purchasing everything, and the demand for it, there- 
fore, consists of everything which people have to sell. 

The principle, however, even in the case of money, holds 
good only under the supposition that the quantity of commod- 
ities, the number of exchanges, and the number of people hav- 
ing occasion to effect exchanges, remain unaltered. Other- 
wise, if there be an increase in either of these respects, the 
quantity of money being unchanged, the value of that money 
wiU rise ; or if money is increasing, the increase in these other 
respects may neutralize, wholly or in part, the depreciation of 



THE DECLINE IN THE VALUE OF MONEY. 403 

that money. This was the case after the discovery of Amer- 
ica. There was an immense enlargement of commerce and 
manufactures at that period, and a great improvement in the 
modes of living. The discovery of America itself, and of the 
passage round the Cape of Good Hope, and the colonization 
of the West by Europeans, greatly enlarged the demand for 
money. Before 1500, vastly the larger portion of the people 
were engaged in agriculture ; they raised most of the articles 
which they needed by their own labor, and obtained many 
others by direct barter. Afterwards, many were diverted into 
commercial and manufacturing pursuits, and the consequent 
division of labor greatly increased the number of proper mer- 
cantile exchanges. The middle classes now first came into 
notice as a distinct power in the state. As wealth advanced, 
luxury grew apace. The actual consumption of the precious 
metals, by abrasion of the coin, the wear of plate, lace, and 
trinkets, by plating and gilding, and by losses through ship- 
wreck or fire, became considerable. 

It is easy to perceive why, under such circumstances, the 
supply having become eleven times as great, the value fell 
only to one fourth of what it had been. On the other hand, 
why the value did not advance again, in the century during 
which the supply was nearly stationary, though commerce, 
wealth, and luxury were still rapidly increasing, is a point 
which requires explanation. But as society advances, means 
are discovered for economizing the use of money. The vast 
extension of credit ; the establishment of banks, and especially 
of Savings' Banks, which bring together and keep in active 
use a vast number of small sums, which would otherwise be 
hoarded or lie dormant in the hands of individuals ; the circu- 
lation of bank-notes, checks, and bills of exchange, which per- 
form nearly all the functions of money ; and, more than all, 
perhaps, the introduction of accounts current among traders, 
by which purchases are set off against sales, and commodities 
are thus virtually bartered for commodities, money being 
needed only at the final settlement, and then only to a trifling 
amount, — all are expedients for completing exchanges with- 
out the actual transfer of coin. Only the rapidly extended use 
of these expedients could have prevented a considerable rise in 
the value of money, and consequent fall of prices, between 



404 THE DECLINE IN THE VALUE OF MONEY. 

1810 and 1830, when the annual supply of the precious metals 
was much diminished, and the operations of commerce greatly 
enlarged. 

Is it probable that the effect of the present vastly increased 
supply of the precious metals will be, to any considerable ex- 
tent, retarded or neutralized by an increased demand for 
money, through the growth of luxury and trade ? We see no 
circumstances likely to produce this result, except the coloni- 
zation of the gold-bearing regions themselves ; and even this 
can have comparatively little influence. These countries, it is 
true, are very distant from the world's great centres of com- 
merce and wealth, and their population grows with marvellous 
rapidity. In all distant colonies, and especially in those 
formed under the excitement of searching for gold, the various 
expedients for economizing the use of money are slowly intro- 
duced and imperfectly developed. Time is needed to import 
the machinery of banking and all the refinements of trade, and 
especially for the establishment of confidence in the commu- 
nity, so that large operations can be conducted upon credit 
For many years, at least, California and Australia must use 
chiefly a hard-money currency, while large amounts of bullion, 
as I have already remarked, will be in transitu, — wandering 
about, as it were, from one country to another, to find where 
they will be of most value, — before they pass into active cir- 
culation as currency. But these circumstances can impede 
the result only for a few years ; they cannot materially lessen 
or weaken it. Perfect as the machinery of trade now is, and 
perfectly as it is understood, no country which is colonized by 
commercial nations can remain far behind the mother land in 
the use of money-saving expedients. In respect also to the 
use of the precious metals for articles of luxury and ostenta- 
tion, M. Chevalier finds reason to believe that it is rather 
diminishing than increasing. The ofiScial returns, both in 
England and France, show that there was a larger manufacture 
of gold and silver plate in those countries before 1830 than 
there ever has been since, if we except the last three or four 
years, during which time, as might have been anticipated, there 
has been a moderate additional consumption of gold in the 
arts. " The luxury of our days," says Chevaher, " has demo- 
cratic features ; it is very calculating and economical. It is 



THE DECLINE IN THE VALUE OF MONEY. 405 

lavish of gilding and silvering, but requires few massive articles 
in silver, and still fewer in gold." It seems most probable, 
then, that the general principle will hold, that the value of 
money will fall in the same ratio in which the average annual 
supply of it is increased. 

Leaving all these preliminary considerations, then, we come 
to the main question, — Is there anything in the prospect of a 
great decline in the value of money to create serious uneasi- 
ness and alarm ? We suppose that the decline will be grad- 
ual, that it will be spread over many years, that at least a 
quarter of a century must elapse before it can be completed. 
There wiU be a rise in the prices of all commodities, with a 
corresponding increase in wages and salaries. Labor wiU be 
higher paid, both because it will be more productive, or, in 
other words, the articles it produces wiU have a greater nomi- 
nal value, and because the cost of living will be greater, so 
that, if wages and salaries did not rise, the labor could not be 
had. The rise of prices being general, will consequently be 
only nominal ; that is, one commodity may be bartered for an- 
other on just the same terms as before. If, when flour is five 
dollars a barrel, it takes five barrels of flour to buy one coat, 
after money has fallen to one half of its value, the coat can 
stiU be had for five barrels of flour ; but it will then be said to 
be worth fifty dollars, and the flour to be ten dollars a barrel, 
instead of five. In this narrow view of the subject, therefore, 
or so far as this effect extends, no one will be directly bene- 
fited, and no one directly injured. 

With respect to outstanding obligations, or contracts to de- 
Liver money at a future day, the case will be different. K I 
borrow one hundred dollars at a time when that sum wiU pur- 
chase twenty barrels of flour, or an equivalent amount of other 
commodities, and am not called upon to repay it till money 
has so far fallen in value that the sum wiU buy only ten bar- 
rels, the debt is really cancelled by returning only one half of 
the value which was borrowed. To this extent, therefore, 
every one will be benefited so far as he owes money, and will 
be injured so far as he has money to receive. But in either 
case, he will be affected only by the amount of the deprecia- 
tion which takes place in the interval between the contraction 
of the debt and its payment. If twenty-five years elapse be- 



406 THE DECLINE IN THE VALUE OF MONEY. 

fore the depreciation is completed, and if it take place uni- 
formly, or at the rate of two or three per cent a year, then all 
promises to pay, which have not more than a year to run, will 
not be affected to the extent of more than two or three per 
cent. Now, vastly the larger number of contracts that are 
made in the ordinary course of business are completed within 
the year ; they will not be so much affected by the general de- 
cline in the value of money as they often have been by the 
common fluctuations of interest, and by changes in the price 
of particular commodities. Often, within the last ten years, 
money has been borrowed when the current rate of interest did 
not exceed five per cent a year, and the time of repaying it has 
come when it could with difficulty be had at one per cent a 
month. We may say, generally, then, that all the common 
transactions of business will not be sensibly affected by the 
great change which is in prospect. 

But all fixed money payments which are now contracted for, 
and have many years to run, will be seriously affected by the 
coming alteration ; that portion of them which extends over a 
full quarter of a century, will experience the full effect of it. 
All government stocks, and other stocks yielding a fixed rate 
of interest, and not bearing any obligation to be paid off in a 
few years ; all bank stock, and other permanent investments 
of money yielding income only under the form of interest ; and 
all property let on long leases at a fixed annual rent, must de- 
cline in value with the money which they represent. Such 
stocks, and the property also, if the lease be a perpetual one, 
when the depreciation is complete, will possess only half their 
present relative value. The nominal income yielded by them 
will remain the same, but it will only purchase half as many 
commodities as before. There will be no actual loss to the 
community, for what one loses, another gains. The British 
tax-payer, for instance, will profit by the whole amount of the 
British fund-holders' loss. As the depreciation goes on, taxa- 
tion may be extended pari passu, without throwing any addi- 
tional burden upon the community; and a sinking-fund, 
formed out of the surplus thus obtained, would pay off the na- 
tional debt in less than one generation. As such stocks, more- 
over, are transferable, and frequently pass from hand to hand, 
the total loss upon any portion of them will seldom fall on one 



THE DECLINE IN THE VALUE OF MONEY. 407 

person ; it will be divided among many, and thus be distribut- 
ed among the wealthier portion of the community, who, prof- 
iting in their capacity as tax-payers by the depreciation which 
occasions this loss, will have no great reason to complain. 
Life-annuitants, persons who have insured their lives, m'ort- 
gagees on long periods, and those who have let property on 
permanent or long leases, will be almost the only class com- 
pelled to bear the loss without any direct compensation or 
means of escape. The funds of public institutions and of in- 
dividuals, which exist in the form of floating capital, or what 
is usually called " money at interest," will, of course, suffer the 
full effect of the depreciation ; but, as the ownership of real es- 
tate is commonly connected with the possession of such funds, 
and as the value of real estate wiU rise even in a higher ratio 
than the prices of commodities, owing to the general eagerness 
to secure the only form of permanent investment which will 
not be affected by the decline in the value of money, the loss 
in this case will not be generally without compensation. 

The rates of interest cannot be dnectly altered by the 
change. If gold sinks to half of its present value, the $ 100 of 
principal, and the $ 6 of annual interest for it, will be affected 
in precisely the same ratio ; both sums will purchase but half 
as much of any given commodity as can now be obtained for 
them. Being affected in the same manner, and to the same 
degree, their relation to each other will remain unaltered. In- 
directly, however, a slight diminution in the rates of interest 
may be produced. The great addition to the stock of the pre- 
cious metals wiU appear, at first, in the form of floating capi- 
tal, seeking investment ; it will swell the specie reserves of the 
banks, making them eager to extend the circulation of their 
notes. Thus, until the prices of commodities begin to be sen- 
sibly affected, there will be more lenders than borrowers, and 
money wiU be offered at a lower interest. It was so in 1852. 
In consequence of the influx of gold, the specie reserves of the 
banks were distended to repletion. The Bank of England had 
the enormous sum of twenty-two millions sterling in its vaults, 
or nearly 110 millions of dollars, which is about double the 
amount that is usually considered a safe basis for its circula- 
tion. On the strength of this large reserve, its charter allowed 
it to issue in bank-notes thirty-six millions of pounds sterling ; 



408 THE DECLINE IN THE VALUE OF MONEY. 

but all its efforts could not raise the active circulation over 
twenty-three millions. It consequently reduced the rate of in- 
terest, first to 2i, and then to 2, per cent a year, — the lowest 
rate at which it had ever discounted bills. Consols, moreover, 
or government three-per-cent stock, rose to par and above, and 
the ministry, therefore, formed a plan for reducing the rate of 
interest on the national debt. The Bank of France, also, had 
specie to the amount of 120 millions of dollars, or far more 
than it needed. The accumulation in our own Sub-Treasury, 
or government exchequer, was about seventeen millions ; and 
the coin in the New York banks exceeded the amount of then- 
notes in circulation. Supported by these heavy amounts of 
specie in their vaults, the banks of England, France, and 
America might safely liave increased their issues of notes to a 
very great extent ; and they did endeavor to increase them, as 
otherwise their profits would have been much diminished. Ac- 
cordingly, they pressed more accommodation upon their cus- 
tomers, and money was offered at very low rates. Everywhere 
there appeared to be a superfluity of currency, or of money 
seeking investment, which did not fail soon to produce its 
usual results. 

It has already been said, that it is only the coin in active 
circulation which operates directly upon prices. What is in 
the vaults of the banks is dormant in this respect, its office 
being only to guard the really active portion of the currency 
against frequent and sudden fluctuations. The effects of an 
influx or efllux of the precious metals are first felt on these 
bank reserves, which so far retard or deaden the shock, that 
it is not even perceptible by the community at large till the 
increase or drain has become very serious. Then, even the 
banks begin to feel the pressure. After an unnatural inflation 
of prices by a speculating fever, the heavy importations of 
goods, and consequent heavy exportations of specie, so far 
diminish these specie reserves, which are the ballast of the 
banks, that they find they must fm"l sail, or contract their 
paper issues, if they would not be thrown on their beam-ends. 
On the other hand, an anomalous state of things, like that 
which existed in 1852, creating an immense influx of specie, 
they find their ballast so much increased, that the motion of 
the vessel has become sluggish, and they cannot force their 



THE DECLINE IN THE VALUE OF MONEY. 409 

way through the water unless they spread more sail, or induce 
their customers to borrow a larger amount of bank-notes. 

It may seem strange, that, as the spirit of speculation has 
usually been rife when but slight temptation was offered, it 
should have shown itself so dull, when there was a moral cer- 
tainty that there would soon be a general rise of prices. But 
the prospect of a general and gradual rise of prices does not 
tempt men into hazardous enterprises so strongly as the chance 
of a sudden and great enhancement of the price of one com- 
modity or several. The report of a war with China may 
double or triple the price of tea in a month ; or a rumor of the 
potato-rot and a failure of the crops in England may create a 
fever almost at once in the flour-market here in America. 
But a gradual enhancement in the money value of all com- 
modities does not quickly induce people to purchase largely 
on borrowed capital. There may be brief and violent fluctu- 
ations in the relative value of particular commodities, while 
the great movement is silently going on which slowly enhan- 
ces the value of all. It is conceivable, and even probable, that 
one eflect of the abundance of capital seeking investment, and 
the consequent diminution of the rate of interest, will be to 
lower the prices of many commodities, instead of raising them, 
because these circumstances aid and stimulate production. 
More cotton wiU be spun, because it will be more easy to ob- 
tain capital wherewith to build manufactories and keep them 
in operation. 

Still, the loan of capital could not be so generally offered at 
very low rates of interest without producing, sooner or later, 
its proper result, — a disposition to speculate and a general in- 
flation of prices. This effect began to be manifest towards 
the close of 1852, and became very conspicuous the following 
year. Commodities generally rose in price, to the extent, on 
an average, probably of 15 or 20 per cent beyond what was 
obtained for them in 1850 ; and in the case of breadstuffs and 
some other articles of provision, a partial failure of the crops 
in Europe in 1854 made the enhancement of price much 
greater. As a necessary consequence of the increased cost of 
living which was thus produced, there was a general rise of 
wages and salaries, amounting to at least 15 per cent. These 
results were attended by considerable speculation, it is true ; 
35 



410 THE DECLINE IN THE VALUE OF MONEY. 

as loans could be easily obtained, and there is always a strong 
temptation to buy on a rising market. Thus, the very lucra- 
tive trade with California and Australia, stimulated by the 
extraordinary disturbance of values which was created by the 
discovery of the gold deposits in those two countries, was soon 
carried to excess, and a reaction ensued which ruined many 
adventurers. A reaction followed throughout the United 
States in 1854, which extended to England and France the 
following year. Many persons had traded beyond their means, 
and therefore found great difficulty in meeting their engage- 
ments. The rate of interest rose to its highest point, and 
loans were difficult to be obtained on any terms. The rate of 
discount at the Bank of England was fixed at six per cent at 
the close of 1853, and seldom fell below this point during the 
two following years. In short, there were all the features of a 
commercial crisis, except a fall of prices, which was prevented 
by the steady influx of gold, diminished in amount, it is true, 
but still sufficient to maintain prices and wages at the eleva- 
tion which they had reached. It has become manifest, then, 
that this is a permanent elevation ; having withstood a gen- 
eral pressure in the loan-market, which continued for an un- 
usual period and with extraordinary severity, there is no reason 
to believe that it will give way when ease and prosperity re- 
turn. No one expects that prices will return to the level at 
which they were in 1850 ; money has depreciated in value 
within five years about fifteen or twenty per cent. 

The question will naturally be asked. What has become of 
the large amounts of gold, which were deposited in the banks 
of England, France, and the United States in 1852 ? The an- 
swer is easy ; it has been absorbed by this very rise of prices, 
or depreciation in the value of money, assisted in some degree, 
perhaps, by the exigencies of the war with Russia, which has 
caused large amounts of specie to be transported to Constan- 
tinople and the Crimea. If, as has been estimated, the whole 
amount of coin circulating in the commercial world before 
1850 was 400 millions sterling, and if prices have risen gener- 
ally 20 per cent, 480 millions are now needed to effect the 
same amount of exchanges as before. The depreciation has 
taken place because 80 millions sterling, or nearly 400 millions 
of dollars, have been added to the active specie currency of the 



THE DECLINE IN THE VALUE OF MONEY. 411 

world. This amount was first accumulated in the banks, there 
being no demand for it in open market till the disposition to 
make pm*chases was excited, which at last produced the rise 
of prices. But the addition to the bank reserves, as we have 
seen, necessarily created this disposition to buy ; loans being 
offered in large amounts, and on very easy terms, the purchases 
were made, prices rose, and the money was absorbed into 
the active circulation, instead of being thrown back upon the 
banks. The continued influx of the precious metals from the 
mining countries prevented prices from receding again, and the 
depreciation in the value of money is thus established. The 
reserve in the Bank of England has now fallen to less than half 
of its amount in 1852 ; that in the Bank of France has been 
reduced so low as to create alarm for the safety of the insti- 
tution. 

The experience which we have now had enables us to pre- 
dict with some confidence the future course of the depreciation 
in the value of money. It will not stop here ; the continued 
influx of at least 100 millions of dollars a year from the silver 
mines and gold deposits must again raise the prices of com- 
modities, within five or six years, another 15 or 20 per cent. 
As farther supplies are received from California and Australia, 
the specie reserves of the banks will again be distended, the 
rate of interest will again be reduced, loans and discounts wiU 
be freely offered, and, as a necessary consequence of the larger 
amount of money thus thrown into the market, prices will rise 
still higher, or, what is the same thing, the value of money 
will be still further depreciated. That a speculating fever 
should also ensue, many persons being encouraged by this 
abundance of money and enhancement of price to make pur- 
chases beyond their capital, is a natural, but not a necessary, 
consequence of this alteration of value. It is evident that the 
change might take place by a steady and gradual process, each 
annual receipt of the precious metals from the mines operating 
upon the market to raise prices to an extent almost too slight 
to be appreciated ; if so, there would not be even a fluctuation 
in the rate of interest to indicate the change which is going 
on. But it is more probable that the revolution will not be 
thus uniform in its progress, but that it will advance, so to 
speak, by hitches and starts, a single year being marked by a 



412 THE DECLINE IN THE VALUE OF MONEY. 

considerable rise in prices, which will be followed by two or 
three years of seeming quiescence, and then another rise will 
ensue. Such has been our experience thus far. The princi- 
pal effect upon the market was produced in 1853, the receipts 
from California and Australia having reached their highest 
point the previous year. Since 1853, there has been no gen- 
eral advance ; prices have only been maintained, — those of 
some commodities have even fallen off.* In a year or two, we 
may expect another start, if the annual supply from the min- 
ing countries should not be suddenly and largely diminished. 

One reason why money does not sink in value slowly and 
uniformly, but by starts, is to be found in the time which is 
required for equalizing prices throughout the world. After 
they have risen in the chief commercial countries, such as 
England, France, and the United States, the effect must be 
transmitted to the East, to British India and China. The 
price of opium, tea, silks, and other Eastern products, must 
also rise, and large amounts of gold and silver will be trans- 
mitted to pay for these commodities at their enhanced valua- 
tion. The East has always required more metallic currency 
in proportion to the extent of her commerce than the West, as 
it has fewer banks and other expedients for economizing the 
use of money. 

It may be readily inferred, from what precedes, that, far 
from regarding a considerable dechne in the value of money, 
when produced by natural causes, as a calamity, we consider 
it as a blessing. It will greatly alleviate the burden of taxa- 
tion in many states that are now oppressed by a heavy na- 
tional debt. Private debts, as well as public, will become 
easier to bear; they will be subject to a steady process of 
abatement, too slow, and compensated in too great a variety 
of ways, to occasion any serious loss to the creditor, and still 
affording a sensible relief to aU who have payments to make. 
The greater proportion by far of fixed payments are made by 
those who are engaged in business or industrious undertak- 
ings, to those who are enjoying leisure and wealth. Thus, the 

* Breadstuffs may be thought to be an exception ; but these ought not to be taken 
into account, except on an average of a considerable number of years. A very 
short or very abundant harvest will affect the price of flour much more than any ad- 
vance or decline in the value of money. 



THE DECLINE IN THE VALUE OF MONEY. 413- 

relief and the encouragement come to the more active and in- 
dustrious classes, while the loss, small in proportion, falls upon 
those who are most able to bear it. The increasing abundance 
of money, and the steady rise of prices, stimulate all forms of 
industry and enterprise. As the operations of trade and man- 
ufacture are quickened, wages tend to rise even in a higher 
ratio than the prices of commodities. Thus the condition of 
laborers is ameliorated, and the inequality in the distribution 
of wealth, which is the great misfortune of the most prosper- 
ous nations, is slowly diminished. Hume, long ago, remarked 
that, " in every kingdom into which money begins to flow in 
greater abundance than formerly, everything takes a new face ; 
labor and industry gain life, the merchant becomes more enter- 
prising, the manufacturer more diligent and skilful, and even 
the farmer follows his plough with greater alacrity and atten- 
tion. But when gold and sUver are diminishing, the work- 
man has not the same employment from the manufacturer and 
merchant, though he pays the same price for everything in the 
market. The farmer cannot dispose of his corn and cattle, 
though he must pay the same rent to his landlord. The pov- 
erty, beggary, and sloth that must ensue, are easily foreseen." 
Even so cautious and conservative a writer as McCulloch fully 
admits the truth of this view, though he adds the obvious and 
just qualification, that the fall in the value of money, which is 
to be advantageous to a country, must proceed from natural 
causes, and not be an intentional reduction by the authority 
of the state. Apart from the obligation to act with good faith 
and equal justice to all classes, which is incumbent upon every 
government, it is obvious that any measure, having this end in 
view, would occasion a great shock to public and private cred- 
it, and cause a large amount of capital to be transported to 
other lands as to places of security. 

Those who were apprehensive that a decline in the value of 
money, produced by the increased supply of the precious 
metals, would derange the operations of business, and destroy 
large amounts of wealth, may console themselves by remem- 
bering that England, France, and the United States have, at 
no remote period of then- history, passed, without any very se- 
rious consequences, through crises similar in character, but 
more violent and sudden than that which is now in prospect. 
35* 



414 THE DECLINE IN THE VALUE OF MONEY. 

In May, 1837, when all the banks in the United States sus- 
pended specie payments, specie rose to a premium amounting, 
on an average, to at least 12 per cent, and therefore disap- 
peared from the circulation, all obligations being discharged in 
paper, — that is, by the payment of 88 cents on the dollar. 
This alteration in the value of the currency was far more vio- 
lent, and more sweeping in its effects, than that which we are 
now experiencing. It was a depreciation of 12 per cent, and 
as it took place at once, it literally affected all debts which 
came due while it continued. But a gradual depreciation of 
two or three per cent a year has scarcely a perceptible influ- 
ence on the great bulk of business transactions, which involve 
obligations to pay that have only a few months to run. It is 
more important to observe, that the suspension itself, or the ac- 
knowledgment of the depreciation of the currency, which, in 
truth, had already taken place, was felt as a relief. It had 
been preceded by a period of advancing prices, great activity 
in commerce and manufactures, and universal prosperity. 
These high prices could not be maintained, because the infla- 
tion of the currency had been unnatural, and was, therefore, 
temporary. The suspension came, not because the currency 
had expanded, but because it could not expand any further, — 
because there were not gold and silver enough to maintain it 
at the point which it had reached. The distress was caused, 
not by the decline in the value of money, but by its advance, 
— by the contraction of prices, and the restoration of things to 
the old standard. It was felt, not when a debt of 100 dollars 
could be paid off by 88 dollars, but when a debt contracted by 
receiving virtually only 88 dollars had to be discharged by pay- 
ing 100. As no such reaction or collapse can follow, when the 
rise of prices has been occasioned by a natural cause, that is, 
by the augmented supply of the precious metals, we shall have, 
in the case before us, the period of prosperity, and a long one 
too, without being obliged to pay bitterly for it afterwards. 

It was just so during the suspension of specie payments by 
the Bank of England, that began in February, 1797, and con- 
tinued till 1819. The depreciation, which was very slight for 
a few years, rose suddenly, in 1810, to 13 per cent, and at- 
tained its maximum in 1814, when it was 25 per cent. The 
ministry, who at first regarded the suspension with great anxi- 



THE DECLINE IN THE VALUE OF MONEY. 415 

ety, came afterwards, it is said, to be as much delighted with 
it as if they had found a mountain of gold. And well they 
might be delighted. It was this depreciation of the currency 
which carried England triumphantly through the war, — which 
enhanced rents and profits, gave unprecedented activity to 
manufactures and commerce, kept the laboring population 
employed, and therefore quiet, enabled the government to 
raise enormous loans without difficulty, and made the people 
bear, with ease and cheerfulness, an amount of taxation which 
they can now hardly contemplate without shuddering. " It is 
undeniable," says a very well-informed writer, "that during 
the greater part of that period (from 1793 to 1814) the trade 
of the country was in a state of unexampled prosperity. In 
no twenty-two years of our history, of which we have authen- 
tic accounts, has there ever been so rapid an increase of pro- 
duction and consumption, as in the twenty-two years ending 
with 1814." It is not going too far to say, that, without the 
high prices of those years, Wellington could not have driven 
the French out of Spain, or triumphed at Waterloo. The 
dark hour came, when, after the close of the war, it was 
thought necessary to take measures to contract the currency, 
restore the former value of money, and submit to the conse- 
quent fall of prices. " In whatever degree minor circumstan- 
ces may have cooperated, the great and mighty source of the 
distresses felt by all classes of producers has been the transi- 
tion that took place at the termination of the war, — the tran- 
sition from an immense, unremitting, protracted, effectual 
demand for almost every article of consumption to a com- 
parative cessation of that demand." " There was," adds Mr. 
Tooke, " from 1814 to 1816 (a period of rapid contraction of 
the currency) a very general depression in the prices of nearly 
all productions, and in the value of all fixed property, entailing 
a convergence of losses and failures among the agricultural, 
and commercial, and manufacturing, and mining, and ship- 
ping, and building interests, which marked that period as one 
of most extensive suffering and distress." 

By a very natural association of ideas, the years marked 
first by a great decline, and then by a rapid restoration, of the 
value of money, come to be remembered only as one period, 
or complete cycle, of great prosperity followed by stiUgreater 




416 THE DECLINE IN THE VALUE OF MONEY. 

depression and distress ; and men naturally shrink from so 
cruel an alternation. They forget that the prosperity alone is 
consequent on the depreciation of the currency, and if this de- 
preciation could continue, or become permanent, no reaction, 
no distress, would succeed. It was such a permanent decline 
in the value of money which caused the marvellous develop- 
ment of the wealth and material prosperity of England, that 
took place during the reign of Elizabeth ; and it is to a decline 
equally permanent, and perhaps equally great, that we have 
now to look forward. Surely, there is nothing in such a pros- 
pect to create agitation and alarm. We know not what polit- 
ical troubles may grow out of this grand monetary revolution, 
or that it will have any political effect whatever ; but industry, 
commerce, and the arts have nothing to fear from it, but every- 
thing to hope. 

Coming down again to particulars, it was generally expected 
that the decline in the value of money would be indicated by 
a variation in the relative values of gold and silver, as the in- 
crease in the annual supply was thought to be almost exclu- 
sively of the former metal. Such a variation would enable the 
legislature, from time to time, to determine the amount of the 
depreciation which has taken place, and, by such enactments 
as the Gold Bill passed in 1834, and the law enacted by Con- 
gress in 1853, to adjust the state of the currency to the new 
values of the precious metals. But we have already shown 
that, owing to the unexpected increase of the annual product 
of silver, and the sudden diminution of that of gold, the change 
in the relative value of the two metals wiU probably be much 
less than was anticipated. The variation will indicate in part 
the decline in the value of money, but it will not be a measure 
of the whole depreciation. Silver, for instance, is now only 
two per cent dearer in comparison with gold than it was in 
1848, while the depreciation in the value of both metals, or of 
money generally, is from 15 to 20 per cent. One reason, per- 
haps, why the change in the proportional value of the two has 
not become more manifest, may be found in the change which 
has taken place in the currency of France. The circulation in 
that country was almost exclusively metallic, as the only bank- 
bills were of a very high denomination ; and, till recently, it 
consisted for the most part of silver, gold bearing an agio of 



THE DECLINE IN THE VALUE OF MONEY. 417 

about seven in a thousand, and therefore not coming into gen- 
eral use. But the influx of gold from Australia and California 
has reversed this state of things. The French mint has coined 
a very large amount of gold during the last five years, which 
has entered rapidly into circulation, displacing an equivalent 
amount of silver coin, which has been melted up and sent 
abroad. It is estimated, by well-informed French and English 
writers, that the silver thus set free in France alone amounts 
to thirty milUons of dollars. To this was added for a time a 
very considerable supply from this country, obtained in a sim- 
ilar way, — as we know that before the law was altered, in 
1853, our American silver coins, of full weight, had generally 
disappeared, their place, for purposes of change, being supplied 
by the worn and clipped Spanish pieces. About fifteen mil- 
lions in silver were thus set free in the United States for a 
year or two ; but the new.law of 1853 called it all back into 
circulation. 

But any alteration, though a small one, in the relative value 
of the two precious metals, will be an inconvenience in every 
country where there is a double standard, or, in other words, 
where both gold and silver are a legal tender for the discharge 
of debts ; for according to the law already explained, the metal 
which is overvalued in relation to the other will push that 
other out of circulation, and thus become the sole medium of 
exchange. A change must be made in the mint regulations, 
therefore, as we cannot do without silver for purposes of 
" small change," and it would be inconvenient to do without 
gold in making large payments. The question then arises, — 
and it is a very important one, — how the alteration in the 
coinage shall be made. Shall it be by adding to the quantity 
of gold, or by diminishing the quantity of silver, which now 
passes for a dollar? If the former course be adopted, the 
value of money will decline only in proportion to the depreci- 
ation of silver, the greater depreciation in the value of gold be- 
ing obviated by the increased quantity of it which passes under 
the old denomination. If the latter course be preferred, money 
will fall in value as rapidly as the worth of gold is depreciated. 
In either case, several successive changes of the mint regula- 
tions will be necessary. If, for instance, gold is now worth two 
per cent less, when compared with silver, than it was four or 



418 THE DECLINE IN THE VALUE OF MONEY. 

five years ago, the quantity of gold contained in an eagle must 
be increased two per cent, or the quantity of silver contained 
in a dollar must be diminished two per cent. In either case, 
the relative value of the two precious metals still tending 
to change, the operation in a year or two must be repeated. 
The matter might be simplified, it is true, by giving up the 
dovible standard, and using in future but one metal for coin- 
age. Thus, we might coin gold only, and at the present rate, 
putting 232.2 grains of pure gold into an eagle, or 23.22 grains 
into a dollar, and allow silver to be bought and sold only as 
bullion, or at whatever rate it might command in the market 
per ounce, Troy weight. Or, gold coins might be dispensed 
with, and only silver allowed to circulate as currency, and at 
its former rate, of 371.25 grains to a dollar. In this case, as so 
much more silver would be needed if all money was to be 
composed of it, its absolute value would probably be en- 
hanced ; it would be worth more, not only in relation to gold, 
but in relation to all other commodities. 

The question which we are now considering is not one of 
mere convenience or expediency ; we must also see what ab- 
stract justice requires in all dealings between debtors and cred- 
itors. Those who are in favor of increasing the quantity of 
gold, rather than of lessening the quantity of silver, which now 
passes for a dollar, may argue very plausibly, that a debt 
ought to be cancelled only by the payment of money equal in 
value to that in which it was contracted. K I have borrowed 
one thousand silver dollars, or something which could readily 
be exchanged for one thousand silver dollars^ I ought not to 
be allowed to cancel the debt by paying one thousand gold 
dollars, after gold has fallen to one half of the value which it 
had when I obtained the loan. 

This argument is plausible, but it is insufficient. All mer- 
cantile contracts must be construed literally, or must have a 
specific performance. The law never undertakes to guard 
either party against the evil consequences to himself of a 
change of values which he has not foreseen. Such changes 
are very frequent in mercantile transactions, and the maxim, 
Caveat emptor, applies to them all. If I pay one thousand dol- 
lars now, for one hundred barrels of flour to be delivered three 
months hence, and if the price of flour falls meanwhile to eight 



THE DECLINE IN THE VALUE OF MONEY. 419 

dollars a barrel, I must not expect that one fifth of the pur- 
chase-money wiU be paid back to me ; and if the price, on the 
other hand, rises to twelve dollars, the seller cannot require me 
to make up the difference. Each party must bear the conse- 
quences of his bargain, and of his own want of foresight. In 
like manner, if a landholder leases an estate for twenty years, 
at an annual rent of five hundred dollars, he cannot rightfully 
demand compensation, nor can the lessee ask an abatement, 
if, in the course of those twenty years, the value of the dollars 
should be altered by circumstances over which neither party 
had any control. According to the state of the law before 
1853, when we suppose the lease was made, the annual pay- 
ment was to be either five hundred times 23.22 grains of pure 
gold, or five hundred times 371.25 grains of pure silver. It 
was a part of the contract, that the lessee should have the op- 
tion of paying his rent in either of these forms, the two metals 
in these proportions being both legal tender. It is the misfor- 
tune of the lessor, but certainly not the fault of the lessee, if, 
when the rent becomes due, the 23.22 grains of pure gold will 
no longer purchase so many commodities as before. The lat- 
ter cannot, therefore, be obliged to pay silver ; for he bargained 
to pay gold, if he saw fit. If, indeed, the government should 
arbitrarily " raise the standard," as it is termed, or decree that 
the dollar should in future contain only 200 grains of pure sil- 
ver, instead of 371.25 grains, then equity, if not law, would re- 
quire the lessee to pay his rent in coins of the old standard, or 
their equivalent ; for the spirit, if not the letter, of his covenant 
is, not to pay what may he called a dollar at any future time, but 
what is really accounted to be a dollar at the time when the 
bargain was made. It is but another application of the same 
rule of equity to say, that he shall not be held to pay 40 
grains of pure gold for a dollar, when he covenanted to pay 
only 23.22 grains. 

Apart from all considerations of expediency, then, it would 
be an obvious violation of justice, in any country where a 
double standard exists, to seek, by altering the regulations of 
the mint, to prevent the present and the expected depreciation 
in the value of gold from affecting the value of all money to 
the full extent of such depreciation. In other words, it would 
be wrong to alter the law on any other principle than those on 



420 THE DECLINE IN THE VALUE OF MONEY. 

which it was altered in 1853. The bill on that occasion was 
prepared in conformity with an able report from the Director 
of the INIint, and it passed both houses of Congress by a large 
majority. It provides, that the silver half-dollar, instead of 
206i grains of staiuiard silver, one tenth being alloy, which 
was its former weight, should contain but 192 grains of such 
silver, — the quarter of a dollar, dime, and other silver coins, 
being reduced in the same proportion. In other words, the sil- 
ver dollar now contains only 345.6 grains of pure silver, instead 
of 371. '25 grains, as formerly, the reduction being about 6.91 
per cent. Thus the ratio of gold to silver in our coins, instead 
of being nearly 1 to 16, as before, is now as 1 to 14.884. The 
former ratio undervalued silver aboiu two per cent : the pres- 
ent one overvalues it about live per cent, so that there will be 
no occasion to make any further change, till gold has fallen 
more than five per cent below the present ratio of its value to 
silver. At the same time, to prevent the new sUver coin from 
driving the gold coin out of the currency, the law provides that 
the new coin shall be legal tender only to the amount of five 
dollars. As the silver buUion which can be purchased for 
§ 100 is coined at the mint into § 105, the law prohibits silver 
from being deposited for coinage except by the Treasurer of 
the ^lint, under the authority of the United States ; and care 
is taken that no more of it shall be coined than is needed for 
the purposes of circulation, as otherwise the coin might be de- 
preciated in the market to the extent of this five per cent. 

The necessity for passing tliis law arose from the fact, that, 
in 1852, gold having fallen tsvo per cent below its relative 
value to silver as established by the mint regulations then in 
force, — that is, 23.22 grains of pure gold having fallen r\vo per 
cent below the value of 371. t?5 grains of pure sUver. though 
either of these sums was legal tender for a dollar, — all the for- 
mer silver coins of full weight had been melted up or exported, 
and the pubhc were thus exposed to great inconvenience from 
the want of •• small change." The only small coins in circula- 
tion were the worn and defaced Spanish pieces, which had 
lost, by abrasion or clipping, from five to ten per cent of their 
nominal value ; and as there Avere not enough even of these 
for the purposes of the currency, it had become very difficult 
to effect small purchases, or to obtain •• change " for a dollar. 



THE DECLINE IN TlllO VALUE OF MONEY. 421 

A profit of two )ier cent is enough to tempt the bullion-dealers 
to gather up the silver coin very eagerly and send it abroad. 
On every million of dollars thus sent, — and we were then re- 
mitting millions to Europe every month, — they made a gain 
of $ 20,000, if they could collect the sum in United States sil- 
ver coin. Obviously, no gold would be sent so long as silver 
coin could be had ; and though, since 1789, the mint had 
issued over 77 millions of dollars in such coin, in less than six 
months it had become so scarce that an American half-dollar 
of full weight was seldom seen. The question was not, then, 
whether we should fall from a silver coinage containing 371.25 
grains of pure silver in the dollar, to one which is nearly seven 
per cent inferior to it in value, but whether we should rise from 
a worn and insufficient Spanish currency, which had lost 
nearly 10 per cent of its value, to one that is degraded only 
about five per cent. The new law did not by its own efficacy 
debase or depreciate any kind of money ; it only recognized a 
depreciation that had already taken place, from natural causes, 
over which human legislation had no control, — a deprecia- 
tion of gold caused by the great increase in the annual supply 
of that metal, and a depreciation of silver money produced, so 
to speak, by its contact with the depreciated gold. The new 
law was a measure to prevent the necessary or inevitable de- 
cline in the value of money from proceeding in an irregular 
manner, or throwing our currency into unnecessary confusion. 
At present, the government obtains a considerable profit from 
the manufacture of silver coin ; its over-valuation, amounting 
to five per cent, is also enough to prevent it from being ex- 
ported or melted up, but is not so large as to afford any temp- 
tation to the counterfeiter. 

The object of the new law was to introduce into this coun- 
try the system of coinage which has been tried in England for 
over thirty years, and has been found to answer excellently 
well, especially during the last four or five years, when it has 
obviated the difficulty that would otherwise have arisen from 
the varying ratio of gold to silver. The English system is ex- 
plained by McCulloch as follows : — 

" From 1666 down to 1817, no seigniorage was charged on 
the silver coin ; but a new system was then adopted. Silver 
having been underrated in relation to gold in the mint propor- 
36 



432 THE DECLINE IN THE VALUE OF MONEY. 

tion of the two metals fixed in 1718, heavy silver coins were 
withdrawn from circulation, and gold only being used in all 
the larger payments, it became, in effect, what silver had for- 
merly been, the standard of the currency. The act of 56th 
George III., regulating the present silver coinage, was framed, 
not to interfere with this arrangement, but so as to render sil- 
ver entirely subsidiary to gold. For this purpose, it is made 
legal tender only to the extent of 40^. ; and 665., instead of 
625., are coined out of a pound Troy, the 4s. being retained as 
a seigniorage, which, therefore, amounts to 6^ per cent. The 
power to issue silver is vested exclusively in the hands of gov- 
ernment ; who have it, therefore, in their power to avoid throw- 
ing too much of it into circulation, and, consequently, to pre- 
vent its fusion, until the market price of silver shall have risen 
to above 5s. 6d. an ounce." 

" Under these regulations," adds McCulloch, in another 
place, " silver has ceased to be a standard of value, and forms 
merely a subordinate or subsidiary species of currency, or 
change, occupying the same place in relation to gold that cop- 
per occupies in relation to itself. This system has been found 
to answer exceedingly well." Our copper coins, like those of 
England, are rated about 75 per cent above their real value ; 
but as the government alone determines how many of them 
shall be issued, and as they are legal tender to the extent only 
of the smallest silver coin, this over-valuation is not productive 
of any bad effect. As no more of them are issued than are 
needed, they do not tend to fall below their nominal valuation, 
they cannot be exported or melted up without great loss, and 
the coinage of them affords a considerable profit to the govern- 
ment. About $ 1,300,000 worth of them have been issued in 
this country, nearly three fourths of which sum is clear profit. 

It has been objected to the law of 1853, that, by making 
gold the sole measure of value, it will enable " the debtor to 
pay in gold perhaps worth only as one to ten [in silver], when 
he contracted to pay worth as one to sixteen^ But the mis- 
statement here is obvious. The debtor has not contracted to 
pay g-old which shall be worth sixteen times as much as silver ; 
no such obligation is expressed, none is implied, in his con- 
tract. He has simply bound himself to pay as many times 
23.22 grains of pure gold as he owes dollars, be the worth of 



THE DECLINE IN THE VALUE OF MONEY. 423 

that gold more or less. The law under which he made his 
contract, and which still exists, declares that the coin contain- 
ing 23.22 grains of pure gold shall be legal tender for a dollar. 
Accordingly, to increase the quantity of gold in a dollar, — to 
declare, for instance, that it should in future contain 30 grains, 
— unl'ess the declaration were accompanied with a proviso that 
all debts previously contracted might be discharged by pay- 
ment of the old coin or its equivalent, would be to violate that 
clause in the Constitution which forbids the passage of any 
law impairing the obligation of contracts. A debtor no more 
insures the future value of the dollars which he promises to 
pay, than the grain-dealer insures the future price of a cargo of 
flom*, which he sells before it has yet come into port. The 
contingency of a rise or fall in the value of the article is what 
the buyer knowingly takes upon himself. 

There are some particular reasons why a decline in the 
value of money, such as is now taking place, should not be re- 
garded with apprehension in this country, but rather as a great 
addition to the future sources of our national well-being. As 
has been mentioned, those countries which have a large na- 
tional debt are most likely to be benefited by the change. 
The burden of taxation will be essentially diminished, while 
the loss sustained by the fund-holders will fall on shoulders 
that are most capable of bearing it, and will also be distrib- 
uted among many, and over a long period of years, the fre- 
quent changes in the ownership of the stocks, moreover, tend- 
ing to render their real depreciation almost imperceptible. For 
this reason, the present revolution in the monetary world seems 
to be contemplated without terror in Great Britain ; at any 
rate, no one hints at the expediency of giving up the present 
exclusive gold standard, which exposes the currency to the full 
shock of the alteration. There are few advocates there of the 
plan of making silver the standard, and gradually increasing 
the quantity of pure metal in the gold coins. Our national 
debt, it is true, is but small, and what little there is will 
quickly be extinguished. But the debts of the individual 
States are large, amounting in the aggregate to over "two hun- 
dred millions of dollars, a large portion of which is owned in 
Europe. There are also stocks to a very large amount, issued 
by cities, railroads, and other corporations, in which English 



424 • EFFECT OF SPECULATION ON PRICES : 

capitalists have made large investments ; while there are no 
foreign stocks owned in this comitry. The rate of interest 
being higher here than in the Old World, European capital 
has been attracted here in so large quantities, that our annual 
remittances for interest already constitute no small portion of 
our exports. We do not call these remittances " a drain upon 
the resources of the country," as they are often denominated 
by the unthinking ; for the transactions on which they are 
founded have swelled those resources far beyond the limit 
which would otherwise have bounded them. Still, it is satis- 
factory to remember, that, as the monetary revolution will op- 
erate exclusively to the benefit of the indebted party, our own 
land will derive as much benefit from it, in proportion to our 
means, as any other country on earth. 



CHAPTER XXIII. 

EFFECT OF SPECULATION UPON PRICES. THE THEORY OF A 

COMMERCIAL CRISIS. 

Having considered at length the nature and uses of money, 
we are now prepared to explain the adjustment of prices in 
the market, and especially the causes of fluctuations of price. 
The price of a thing may be defined to be its present market 
value, or temporary exchangeable power reckoned in money. 
Its permanent or natural exchangeable value, as I have already 
shown, depends on the cost of its production, and is the pivot 
about which the price, or immediate market value, is perpetu- 
ally oscillating, never departing from it far, or for any consid- 
erable length of time, in either direction. If the price fal^s 
below the cost, a smaller quantity of the article will be pro- 
duced, and therefore the price will soon begin to rise ; if it 
considerably exceeds the cost, production will be stimulated, 
more of the article will be offered in the market, and then the 
price will fall. 

The general principle is, that the price so adjusts itself that 



A COMMERCIAL CRISIS. 425 

the demand shall be just equal to the supply. If the supply 
be too great for the present demand, if the market be over- 
stocked with the article, a fall of price must ensue, and this 
diminished price will bring the commodity within the means 
of a larger class of consumers ; that is, the demand for it will 
be increased enough to take off the quantity which was a drug 
in the market at the higher price. For instance, when flour is 
ten dollars a barrel, it is beyond the means of a large class in 
the community, who will then be obliged to live on corn-meal 
and potatoes. We will suppose that 600,000 barrels of flour 
can be disposed of at this price, because this quantity will sat- 
isfy the wants of all who are able to pay ten dollars a barrel. 
But if the price should fall to five dollars, the poorer class can 
purchase flour, and a million of barrels may consequently be 
disposed of. On the other hand, if the supply should not be 
equal to the demand, — if only 500,000 barrels should be 
brought to market, — the competition of the buyers with each 
other win cause the price to rise (say) from ten to twelve dol- 
lars ; and this enhancement of price will lessen the number of 
those who are able to purchase, so that now only half a million 
of barrels are required. Thus the fluctuations of price are the 
means through which the demand is always made just equal 
to the supply. 

But there is one remarkable exception to the principle, that 
cheapening the price will increase the demand, or augment the 
number of consumers. It is not true that purchasers will al- 
ways buy what they can buy cheapest. If the pursuit of 
wealth, or, what is the same thing, the desire to make savings, 
were always the ruling motive, the principle would hold good. 
But it is not so ; in many instances, the ruling motive is, noto- 
riously, not the love of gain, but the love of display. Through 
the rivalry of individuals in the display of wealth, some arti- 
cles are prized only on account of their high cost. Cheapen 
them, and the demand will not be enlarged, but diminished, 
for the consvimption of them will then be abandoned by this 
class of persons, who will immediately seek out other and 
more costly articles with which to gratify their love of osten- 
tation. Render them very cheap, and they will go out of use 
altogether. If pearls were as common as oysters, pearl brace- 
lets and brooches would never be manufactured. If equally 
36* 



426 EFFECT OF SPECULATION ON PRICES : 

serviceable articles of intrinsically higher cost cannot be found, 
the aid of that capricious goddess, Fashion, will be called in 
to create a factitious enhancement of the price of certain com- 
modities. The demand for these commodities is then in- 
creased by the addition to their price ; when cheap, they were 
neglected ; when they have become scarce and high in price, 
they are eagerly sought after, and persons even of moderate 
means will submit to considerable sacrifices in order to obtain 
them. And the cases are neither few nor unimportant, in 
which the rule is thus inverted. Most of the finer manufac- 
tures of cotton, wool, and silk, together with fine cutlery, ex- 
pensive pieces of furniture, and nearly all the fancy articles 
which become articles of desire because they are fashionable, 
belong to this class. Lower their price, and the demand for 
them is diminished. 

What Political Economists term the demand, consists of two 
elements, — the ability to purchase, and the desire for the thing 
itself, or the disposition to purchase. These two must coexist 
in order to constitute an effectual demand, and thus affect the 
price. In the case of the poorer classes, including persons of 
moderate means, it is the want of the former element, the abil- 
ity, which limits the demand. In this case, then, lower the 
price, and the consumption is increased. But for people of 
wealth, it is the lack of the second element, the desire or dis- 
position, which restricts the demand ; to diminish the price 
will not increase their consumption of the commodity, but in 
most cases will lessen it, as the possession of the article will 
no longer be a token of wealth. 

The price is usually said to vary in inverse ratio with the 
supply, or to diminish as the supply increases, and vice versa. 
But not all the commodity which is in being, not all even of 
that portion of it which is intended sooner or later to be sold, 
constitutes what is properly termed the supply. This term is 
restricted to that portion of the article which is akeady in the 
market, or is noiv offered for sale. The quantity which is held 
in store by speculators, awaiting an expected rise of price, has 
no more effect on the present market, than the quantity which 
is already purchased and held in store only for consumption ; 
as when the government has purchased sufficient stores for the 
army six months in advance. 



A COMMERCIAL CRISIS. 427 

And even in reference to what is now offered for sale, it 
should be observed that the price does not vary in the same 
ratio with the deficiency or excess of supply. This depends 
upon the nature of the commodity, or rather upon the nature 
of the desire to possess it, — whether it be a natural and im- 
perative want, or only an artificial one. If the article be a 
mere luxury, or desired only for purposes of ostentation, a de- 
ficiency of one third in the amount offered for sale will not 
make the price one third larger ; rather than purchase it at a 
cost so much enhanced, many persons will do without it alto- 
gether. If the annual supply of diamonds from the mines 
were reduced one half, it is not probable that the price of them 
would be doubled, or even that it would be materially in- 
creased ; as they are of little use except for purposes of dis- 
play, persons would gratify their ostentatious feelings by pur- 
chasing some other commodity at a price nearly equivalent to 
what they formerly paid for diamonds. Large pearls, or other 
gems of high cost, would answer just as well. On the other 
hand, if the article is a necessary of life, so that people wiU 
submit to any sacrifice rather than resign it, and especially if 
it be of such a nature that an apprehended scarcity of it oper- 
ates strongly on the fears of the multitude, a deficiency of one 
third may double, triple, or quadruple the price. " The price 
of corn in England," says Mr. Tooke, "has risen from one 
hundred to two hundred per cent, when the utmost computed 
deficiency of the crops has not been more than between one 
sixth and one third below an average, and when that defi- 
ciency has been relieved by foreign supplies." 

To what point, then, will the enhancement of price in either 
case — whether of luxuries or necessaries — be carried ? " To 
that point," says Mr. Mill, " whatever it be, which equalizes 
the demand and supply ; — to the price which cuts off the extra 
third from the demand, or brings forward additional sellers suf- 
ficient to supply it." It appears, also, contrary to what might 
have been anticipated, that articles of high cost, and therefore 
in comparatively limited demand, are most steady in price ; 
while those of prime necessity and in general use, such as 
breadstuffs and other provisions, are liable to sudden and vio- 
lent fluctuations. 

The influence of mercantile speculations on price has been 



xjisrioisr 



428 EFFECT OF SPECULATION ON PRICES : 

well explained by McCulloch. " It rarely happens," he says, 
" that either the actual supply of any species of produce in 
extensive demand, or the intensity of that demand, can be 
exactly measured. Every transaction in which produce is 
bought that it may be afterwards sold, is, in fact, a specula- 
tion. The buyer anticipates that the demand for the article 
he has purchased will be such, at some future period, either 
more or less distant," or at some other place, either in the same 
country or across sea, " that he will be able to dispose of it at 
a profit ; and the success of the speculation depends, it is evi- 
dent, on the skill with which he has estimated the circum- 
stances that will determine the future price of the commodity. 
It follows, therefore, that in all highly commercial countries, 
where merchants are possessed of large capitals, and where 
they are left to be guided in the use of them by their own dis- 
cretion and foresight, the prices of commodities will frequently 
be very much influenced, not merely by the actual occurrence 
of changes in the accustomed relation of the supply and de- 
mand, but hy the anticipation of such changes. It is the busi- 
ness of the merchant to acquaint himself with every circum- 
stance affecting the particular description of commodities in 
which he deals. He endeavors to obtain, by means of an ex- 
tensive correspondence, the earliest and most authentic infor- 
mation with respect to everything that may affect their supply 
or demand, or the cost of their production ; and if he learned 
that the supply of an article had failed, or that, owing to 
changes of fashion or to the opening of new channels of com- 
merce, the demand for it had been increased, he would most 
likely be disposed to become a buyer, in anticipation of profit- 
ing by the rise of price, which, under the circumstances, could 
hardly fail of taking place ; or if he were a holder of the arti- 
cle, he would refuse to part with it unless for a higher price 
than he would previously have accepted. If the intelligence 
received by the merchant were of a contrary description, — if, 
for example, he learned that the article was now produced with 
greater facility, or that there was a falling off in the demand 
for it, caused by a change of fashion, or by the shutting up of 
some of the markets to whicli it had previously been admitted, 
— he would act differently; in this case, he would anticipate a 
fall of prices, and would either decline purchasing the article, 



A COMMERCIAL CRISIS. 429 

except at a reduced rate, or endeavor to get rid of it, suppos- 
ing him to be a holder, by oifering it at a lower price. In con- 
sequence of these operations, the prices of commodities, in 
different places and periods, are brought comparatively near to 
equality. All abrupt transitions, from scarcity to abundance, 
and from abundance to scarcity, are avoided ; an excess in one 
case is made to balance a deficiency in another, and the sup- 
ply is distributed with a degree of steadiness and regularity 
that could hardly have been deemed attainable." * 

All commerce, then, may be said to consist in speculation, 
if we leave out of view those operations which are more prop- 
erly regarded as subsidiary to commerce than as forming a 
part of it ; such as the actual transportation of commodities 
from one place to another, and breaking bulk, or selling by 
retail for the greater convenience of consumers. The rest is 
only buying or selling with a view to profit from an expected 
change of price ; and the success of the dealer will depend 
upon the correctness of his anticipations. Speculation, then, 
as McCulloch remarks, "is only another name for foresight." 
It plays an important part in those beneficent arrangements of 
Providence through which the cupidity and selfishness of indi- 
viduals are made to minister to the general good. To recur 
to an instance already cited, it is through the speculations of 
private merchants that the inhabitants of a great metropolis 
are supplied with food and all other necessaries of life, without 
wastefulness and yet without stint, each family receiving every 
day just what it wants, and as much as it w"ants, and being 
admonished through the price to limit or economize its con- 
sumption of any one article, whenever a failure in the harvest 
or other mode of supply, or even the prospect of a failure, ren- 
ders such economy essential. 

The common prejudice against speculation arises, first, from 
confounding it with gambling, to which we must admit that 
it is very nearly allied, as the two operations run into one an- 
other by imperceptible degrees. A stock-jobber, for instance, 
agrees to purchase at a future day a particular amount of gov- 
ernment stock at a certain price, expecting that the market 
price will rise before the day comes, so that he will make a 



McCuUoch's Principles of Political Economy, 4th ed., pp. 336, 337. 



430 EFFECT OF SPECULATION ON PRICES : 

profit by the bargain ; the jobber who contracts to sell him the 
stock at that time, and on those terms, expects that the market 
price will fall in the mean time. But the party who agrees to 
sell has really no stock to dispose of, and he who agrees to 
purchase does not expect to receive the stock, but only to re- 
ceive or pay, on the day appointed, the difference between the 
actual market price and the price agreed upon. Obviously, 
this is only betting upon the rise or fall of stocks within a 
given period, and is therefore properly denounced as " gambling 
in the stocks." On the other hand, a flour-merchant agrees 
to purchase, at a fixed price, a cargo of flour which has not yet 
arrived in port, because he has been led to believe that the 
price will rise, while the person who sells it to him expects it 
will fall ; and this is admitted to be fair speculation, or a legit- 
imate operation of trade. 

How can these two cases be distinguished in principle, so as 
to prove that the one is censurable and the other praiseworthy ? 
McCulloch says, " That may be termed a gambling adventure 
in which the contingencies are unknown, or in which they are 
nearly equaV^ ; for instance, if a bet is to be decided by a 
throw of dice, it is gambling, because the utmost sagacity can- 
not determine how the dice will turn up. But if a flour-mer- 
chant contracts to purchase or deliver flour at a future day, he 
relies upon the information which he has obtained respecting 
the amount of the crops, and the probable extent of the de- 
mand, and his action, as it is thus based upon calculation and 
foresight, is a fair exercise of skill in trade. 

It would seem to follow, then, that if one of the betters 
knew beforehand that the dice were loaded, and could thus 
anticipate how they would turn up, he would not be a gam- 
bler, but an honest man. But the common sense of mankind 
decides directly the other way. It may be said, indeed, that 
the criminality here consists in the deception, the one party 
using information, or having knowledge of facts, which the 
other party was not aware of. But then the flour-merchant 
often acts in the same manner, as he may have ascertained 
some circumstances which will probably affect the future price 
of grain, and he bases his action upon this knowledge, care- 
fully concealing' the facts from the person whom he deals 
with ; and however such conduct may be viewed by strict 



A COMMERCIAL CRISIS. 431 

moralists, it is sanctioned by the almost universal custom of 
merchants, and is regarded as a fair exercise of activity in get- 
ting early information, and of sagacity in profiting by it. 

Speculation can be accurately distinguished from gambling, 
as it seems to me, only by taking into account the different 
motives and intentions of the parties. The gambler, acting 
from the love of excitement almost as much as from the thirst 
for gain, makes bets, or forms contracts which amount to bets, 
with reference to the doctrine of chances only, having no re- 
gard to the effect which his transaction will have upon mar- 
kets by equalizing prices and supplies. The upright merchant, 
excluding as far as possible all consideration of mere chance, 
forms no bargain if his calculations do not assure him that it 
must lead to a favorable result, barring only all unforeseen 
contingencies ; his transactions are all real, or based upon the 
actual transfer of merchandise, with reference to the effect of 
such transfer upon the markets in removing a surplus from 
one time or place, and supplying a deficiency in another. Ac- 
cidents that could not be foreseen may falsify his calculations, 
and bring failure and loss ; but he engages in no enterprise 
that bears hazard upon its face, regarding this as the province 
of the gambler. Failure, therefore, always takes him by sur- 
prise, and he shuns danger, while the other courts it, or delib- 
erately weighs the probability of loss against that of gain. 

Another prejudice against legitimate speculation in trade 
has arisen from its supposed effects in creating an unnecessary 
enhancement of price, to the detriment of the consumers. 
This is a mistake ; the speculator cannot raise prices unneces- 
sarily, without injuring himself more than those who buy of 
him. To prove that he cannot, I will take the strongest case, 
and one in which he is most frequently exposed to popular 
odium, the grain and flour trade. It is for the interest of the 
community that each crop should be distributed equally 
throughout the country and throughout the year. The busi- 
ness of the grain-merchant is to equalize the supplies, and the 
more equal and perfect that he makes this distribution, the 
larger is his profit. His interest, then, even in years of the 
greatest scarcity, is exactly coincident with that of the con- 
sumers. If the deficiency be very great, he sends to foreign 
countries for an additional supply, and thus contributes effect- 



432 



EFFECT OF SPECULATION ON PRICES : 



ually to lower the price. If the harvest, on the other hand, has 
been unusually abundant, he exports a portion of the surplus, 
and thus prevents injury and discouragement to the agricultur- 
ists from the price falling too low, and guards the people 
against the formation of wastefvil and improvident habits in 
consuming a cheap commodity. True, if he has a large stock 
on hand when the scarcity begins to be felt, he makes im- 
mense profits from the rise in price ; and he sometimes holds 
back his stock in expectation of a further rise, though mean- 
while the poorer classes are actually suffering from hunger. 
But in so doing, as Adam Smith remarks, he only treats the 
people in the same manner as the prudent master of a vessel 
often treats his crew. " When he foresees that provisions are 
likely to run short, he puts them upon short allowance. 
Though, from excess of caution, he should sometimes do this 
without any real necessity, yet all the inconveniences which 
his crew can thereby suffer are inconsiderable, in comparison 
of the danger, misery, and ruin to which they might sometimes 
be exposed by a less provident conduct. If he raises the price 
unnecessarily high, he becomes himself the greatest sufferer, as 
he runs the risk of losing a portion of his stock, by the natural 
decay of so perishable a material, and of being obliged to sell 
what remains of it at a much lower price than he might have 
obtained some months before. The profit which he makes 
when the price unexpectedly rises from a failure of the crops, 
is only a fair compensation for the loss which he must suffer 
when the price unexpectedly falls. The average rate of profit 
cannot be higher in this trade than in any other, as the busi- 
ness is free to all, and as competition brings profits every- 
where to a level." 

In fine, says Mr. Buchanan, " those who still imagine that 
corn is artificially raised in price, would do well to consider, 
that, as the supply of provisions is liable to great variations, 
there must be some provision in the economy of nature for 
making a smaller supply last as long as a larger supply ; that 
there is no way of thus regulating the consumption but by the 
price ; and that it is, accordingly, in reference to this great 
object that the price is invariably fixed. It neither can be 
lowered nor increased, but for the sake of more exactly suiting 
the daily and weekly waste to the supply of the year. If we 



A COMMERCIAL CRISIS. 433 

suppose, for example, that the supply falls in one year one 
twelfth below the level of an average crop, (which we know 
frequently happens,) it would, if consumption were to go on 
at the ordinary rate, be consumed in the course of eleven 
months, leaving the last month wholly unprovided for. But 
this, we know, never happens, and it is only prevented by a 
rise of price, which measures the consumption by the defi- 
ciency of the crop ; and whether, therefore, there is an abun- 
dant, middling, or scarce crop, a suitable allowance is sure to 
be measured out to the consumer by a low, a middling, or a 
high price. The corn-dealer, indeed, thinks nothing about all 
this ; his object is to sell his commodity at the highest price; 
and in a scarcity, he takes his full advantage ; but while he is 
thinking only of himself, while he is only playing his own pal- 
try game, he is a mere instrument in the hands of Him who 
brings good out of evil, and who turns the little passions of 
man to the purposes of His own benevolence and wisdom. 
There is really nothing in nature more wonderful than that 
great law of society by which subsistence is measured out in 
due proportion to the supply of the year ; and the more deeply 
it is considered, the more worthy will it appear of profound 
and rational admiration." 

It is not denied, that in the corn-trade, as in other branches 
of commerce, prices are sometimes raised or lowered unneces- 
sarily by the operations of speculators, who have been misled 
by wrong reports, or have erred in their estimates of the effects 
which would be produced on the market by political changes, 
the breaking out of a war, new inventions and discoveries, or 
the stoppage of some sources of supply. Merchants as well 
as other persons are sometimes mistaken in their calculations. 
But the mistakes thus committed soon correct themselves; 
they are usually of small extent and short duration, and they 
injure none so much as those who make them. "When the 
error is discovered, the market experiences a revulsion, and 
prices for a time are depressed as much below their proper 
level as they were formerly, without due cause, elevated 
above it, so that the average result to the consumers is the 
same as if no disturbance had happened. When war was ex- 
pected between England and China, in 1839, it was believed 
that the supply of tea would be almost entirely cut off; the 
, 37 



434 EFFECT OF SPECULATION ON PRICES ! 

whole supply in the market was therefore eagerly bought up 
by dealers and speculators, and prices advanced 100 per cent 
and upwards. But in less than three months, it was ascer- 
tained that the supply, by means of indirect shipments, cargoes 
being transhipped from American and Dutch to English ves- 
sels, would probably be as large as ever, while the consump- 
tion had been much diminished by the high price. There was, 
consequently, a violent reaction in the market, consumers ob- 
tained their tea cheaper than ever, and most of the speculators 
became bankrupts ; they had injured nobody but themselves. 

Such a speculative movement as this, affecting the price of 
only one commodity, can seldom be of much importance to 
the whole body of consumers, or the community at large. In 
fact, there is but one article, wheat and the flour which is 
made of it, the consumption of which is so vast, on account of 
its being in universal use, that any enhancement of its price, 
not connected with a general rise of prices, is a matter of na- 
tional concern. But in this case, fortunately, the sources of 
supply are as numerous as the consumption is great ; and 
owing to the differences of soil and climate, an unusually poor 
harvest in one district or country is usually offset by an un- 
usually good one in another. In 1847, there was a more gen- 
eral failure of the crops in Western Europe than had been 
known for many years ; but the harvest in the United States 
was abundant, and the unavoidable enhancement of price, as 
already explained, having limited the consumption, the aggre- 
gate supply for the whole world was sufficient for the aggre- 
gate demand. On account of the immense quantity of wheat 
and flour that is constantly in the market, speculation has a 
comparatively limited effect upon its price. " Not only its 
value," says Adam Smith, " far exceeds what the capitals of a 
few private men are capable of purchasing, but, supposing they 
were capable of purchasing it, the manner in which it is pro- 
duced renders this purchase altogether impracticable." It is 
produced all over the country, and is necessarily divided at 
first among an immense number of owners, some of whom 
supply the consumption in their immediate neighborhood, 
while others send their produce to distant markets. " The in- 
land dealers in corn, therefore, including the farmer and the 
baker, are necessarily more numerous than the dealers in any 



A COMMERCIAL CRISIS. 435 

other commodity, and their dispersed situation renders it alto- 
gether impossible for them to enter into any general combina- 
tion. If in a year of scarcity, therefore, any of them should 
find that he had a good deal more of corn upon hand than, at 
the current price, he could hope to dispose of before the end of 
the season, he would never think of keeping up this price to his 
own loss, and to the sole benefit of his rivals and competitors, 
but would immediately lower it in order to get rid of his corn 
before the new crop began to come in. The same motives, 
the same interests, which would thus regulate the conduct of 
any one dealer, would regulate that of every other, and oblige 
them all in general to sell their corn at the price which, accord- 
ing to the best of their judgment, was most suitable to the 
scarcity or plenty of the season." * 

But apart from those mistakes of speculators which affect 
the price of only one or two articles, experience tells us that 
far more general errors are sometimes committed ; that a fever 
of speculation appears at times to seize upon the whole mer- 
cantile community, producing for a while an unnatural infla- 
tion of the prices of nearly all commodities, and then, with a 
sudden reaction, carrying them back to a point much below 
their former average, and thus causing general distress, loss of 
confidence, and bankruptcy. These violent changes from a 
period of great activity and seeming prosperity of trade, to one 
of marked depression of prices, stagnation in business, and 
general inability to meet pecuniary engagements, are called 
commercial or monetary crises, and are among the most strik- 
ing phenomena in the history of commerce. The state of 
trade, says Lord Overstone, (formerly Mr. Jones Loyd,) "re- 
volves apparently in an established cycle. First, we find it in 
a state of quiescence, — next improvement, — growing confi- 
dence, — prosperity, — excitement, — over-trading, — convul- 
sion, — pressure, — stagnation, — distress, — ending again in 
quiescence." Experience does not seem to teach caution, or 
instruct merchants and speculators how to avoid a recurrence 
of the evil. These crises are not of infrequent occurrence. 
Both in England and the United States, they come round, on 
an average, about once in every seven or eight years. Sir 



Wealth of Nations, p. 234. 



436 EFFECT OF SPECULATION ON PRICES : 

Robert Peel, speaking in 1844, says : " Within the last twenty 
years, there have been, I think, four such periods, — in 1825, 
in 1832, in 1835-36, and in 1838-39." Since the date of 
his speech, there have been two others, — in 1847, and in 1855. 
In the United States, there was a very violent monetary crisis 
in 1837, when all the banks in the country suspended specie 
payments. Another followed in 1841, when there was a par- 
tial suspension by the banks, and a third in 1854. 

When it is expected that circumstances will cause some 
commodity to rise in price, dealers in it enlarge their pur- 
chases, in order to profit by the alteration ; and these additional 
purchases tend to increase the effect to which they have refer- 
ence, or to raise the price still higher. Other speculators are 
then attracted into the business, and their operations cause a 
further advance. The price thus obtains an unnatural eleva- 
tion, much above what would have been produced by the cir- 
cumstances which first tended to raise it ; and those who have 
accumulated a large stock of the commodity now become anx- 
ious to sell. This is the turning of the tide ; the price ceases 
to advance, and even begins to decline. The holders rush into 
the market to avoid further loss, and their eagerness to sell car- 
ries down the price more rapidly than it rose. The lessons of 
experience are of little use under such circumstances; for 
though it be generally perceived that the rise is merely specu- 
lative, and the reaction be foreseen, each dealer still wishes to 
hold back till the advance has reached its maximum, and to 
sell only when the decline is about to begin. A few succeed 
in choosing the right moment for disposing of their stock ; but 
the sanguine wait for the tide to rise still higher, and are 
caught by the suddenness of the revulsion. A concurrence of 
circumstances may affect the price of several commodities at 
once ; and then, partly from sympathy, partly from the excite- 
ment produced by seeing great fortunes quickly accumulated 
by the few who made large purchases at the riglit moment, the 
rise becomes general, and a fever for buying and selling almost 
any article appears to pervade the whole community. Many 
of those who press so eagerly into the market when any new 
channel of commerce is opened, or when any considerable rise 
of price is anticipated, are not merchants, but persons engaged 
in other business, or living perhaps on fixed incomes, who 



A COMMERCIAL CRISIS. 437 

speculate in the hope of suddenly increasing their fortune. 
" In speculation, as in most other things," says McCulloch, 
" one individual derives confidence from another. Such a one 
purchases or sells, not because he has any peculiar or accurate 
information in regard to the state of the demand and supply, 
but because some one else has done so before him." The in- 
terference of persons not experienced in business tends, of 
course, to fan the excitement, and, when the recoil comes, to 
render the catastrophe more general and more ruinous. 

Two opposite theories prevail respecting the nature and 
causes of a commercial crisis. The first attributes nearly the 
whole evil to an unnecessary expansion of the currency, caused 
by the mismanagement of the banks, and undertakes to find 
a preventive or a remedy by placing very heavy restrictions 
upon the issue of bank-notes. The other regards the banks as 
necessarily passive in the matter, as they have nothing to do 
with buying or selling commodities, and finds the character- 
istic feature of the phenomenon in a great extension of the 
system of credit, which cannot be prevented by legislation, 
and which might take place, and, in fact, often has taken 
place, in countries where only a metallic currency was in use. 
The one party maintains that an expansion of the currency 
always precedes a commercial crisis, and that it is this expan- 
sion which produces the rise of prices ; the other affirms that 
it is the rise of prices which produces what there is of an ex- 
pansion, but that this increase of the currency, at the most, is 
inconsiderable ; — that it is one of the attendant circumstances 
or consequences of the crisis, but is not its cause. Their doc- 
trine is, that prices rise first, and that there is a slight increase 
of the circulation some time afterwards, 

I have already endeavored at some length to prove, that a 
convertible paper currency cannot be issued in excess ; that the 
whole amount of money needed by the country is a fixed 
quantity, and it is not in the power of the banks, however dis- 
posed they may be to do so, to make any direct addition to 
the aggregate of notes circulating in their respective dis- 
tricts. I shall now proceed to show that an expansion of 
the currency cannot produce the fever of speculation and the 
unnatural rise of prices which lead inevitably to a commercial 
crisis. • ■ . 

37* 



v> 



438 EFFECT OF SPECULATION ON PRICES : 

The currency theory is really founded upon the old error, so 
difficult to be entirely exploded, which confounds all wealth, 
and especially all capital, with money ; which regards every 
debtor as a person who has borrowed money, and every cred- 
itor as an owner of money which is temporarily in the posses- 
sion of another ; and which therefore considers any excess in 
the contraction of debts as resulting from the abundance of 
money, and any general difficulty in the payment of debts as 
arising from the scarcity of money. The theory may be con- 
futed, then, by a recurrence to first principles, which teach us, 
that what any person borrows is really not money, but the 
merchandise which he purchases with money ; that what he 
pays is, in truth, only a certificate of the ownership of property, 
which is made over or transferred to his creditor ; and that any 
general difficulty in the payment of debts arises from the fact, 
that many persons have contracted to deliver property at a 
future day, and have been deceived in their expectations of 
obtaining the property in season to fulfil their engagements. 
Money plays a very insignificant part in the whole circle of 
these transactions, being, in truth, only a means of effecting 
these transfers of property with somewhat greater facility ; all 
the transactions might take place, though in an awkward and 
clumsy way, not only if the currency were exclusively metallic, 
but if there were no money whatever in circulation, so that all 
commerce should be reduced to barter. The same specific 
sum of money — that is, the same coins or bills — may be 
used to effect several payments in the same day ; and if there 
was not money enough in the country to perform this office 
quickly and conveniently, the deficiency might, in great part, 
be made up by causing what money there was to do more 
work in a given time, or to effect, on an average, six instead 
of three payments a day ; in other words, greater quickness of 
circulation might be made to compensate for any deficiency in 
amount. The office of money, then, in facilitating the ex- 
change of merchandise and other values, is precisely analogous 
to that of carts and horses in effecting the transportation of 
merchandise. It would be absurd to affirm, that a superabun- 
dance of the means of transportation tempted merchants to 
transport more commodities than were needed, or that, in the 
present advanced state of the arts, there could be any serious 



A COMMERCIAL CRISIS. 439 

difficulty in fulfilling contracts for the delivery of merchandise 
arising from a want of carts and horses. 

The doctrine which attributes all the evils of excessive spec- 
ulation to the mismanagement, or excessive issues, of the 
banks, may be all summed up in the oft-repeated assertion, 
that " it is only the money in circulation that affects prices." * 
Now it is certain and obvious, that the power of making ex- 
travagant purchases, and thereby enhancing prices and con- 
tributing to bring about a commercial crisis, does not at all 
depend upon the quantity of money, whether coin or bank- 
notes, that is in circulation. It might be exercised, as I have 
akeady said, to any extent, though the currency were exclu- 
sively metallic, and even though there were no currency, so 
that all debts should be contracted, and all payments made, in 
kind, or by the delivery of specified amounts of particular mer- 
chandise.! An individual may purchase by giving in ex- 
change either his own notes, or bank-notes ; that is, he may 
buy with his own promises to pay, or with the bank's promises 
to pay. The former promises may be issued in great excess ; 
there is, in fact, no limit to their amount. The latter cannot 
be issued in excess. There is a check — an instantaneous 
and decisive check — on the issue of bank-notes ; specie or 
actual value may be demanded for them at any time at the 
bank counter; and such a demand is a certain consequence 

* Currency or Money ; its Nature and Uses, and the Effects of the Circulation of 
Bank-Notes for Currency, by a Merchant of Boston. 1855. p. 60. This pamphlet 
contains a clear and able statement of the currency theory, by one of its most ear- 
nest advocates. 

t Of course, when there is a currency, whether paper or metallic, it is not denied 
that, if the amount of that currency can be increased, prices will rise as a consequence 
of such augmentation. My only points are, first, that bank or convertible currency 
cannot be issued in excess, and, secondly, that an increase of the currency is not the 
only means of affecting prices, for prices might be raised, as is asserted in the text, 
though there were no circulation. A metallic currency can be augmented, as CaH- 
fomia and Australia have already taught us, and prices have risen in consequence. 
So, also, paper money properly so called, or inconvertible paper currency, can be is- 
sued in great excess, and prices rise enormously in consequence, as is proved in a 
preceding chapter. The great mistake of the currency doctors consists in obsti- 
nately confounding bank currency with paper money, though hardly any two things 
can be more unlike. Thus, in the pamphlet just cited, by " a Merchant of Bos- 
ton," the instances given to prove that bank currency may be issued in excess are 
the paper roubles of Russia, the Continental money of the American Revolution, 
and the circulation of the Bank of England from 1797 to 1819, — all being instances 
of paper money. 



440 EFFECT OF SPECULATION ON PRICES : 

even of a slight excess in the issue. There is no check on the 
excessive issue of the notes of any private person, because they 
are given on time, — for six months, a year, or more. Specie 
cannot instantly be demanded for them. 

Over-trading, or excessive speculation, arises from an abuse 
of the purchasing power, which every man possesses in a 
greater or less degree. " The amount of purchasing power 
which a person can exercise," says Mr. MiU, " is composed of 
all the money in his possession, or due to him, and of all his 
credit. He is tempted to exercise the whole of this power 
only under peculiar circumstances ; but he always possesses 
it ; and the portion of it at any time which he does exercise is 
the measure of the effect which he produces on prices." In 
fine, credit as much exceeds currency in its influence on prices, 
as the number of purchases on credit exceeds the number of 
purchases for cash ; and in the dealings of merchants with 
each other, every one knows that this ratio is at least as one 
hundred to one. Under ordinary circumstances, most traders 
find no difficulty in extending their credit, so far as the pur- 
chase of goods is concerned, to any extent that they may think 
desirable. They may not be able to borrow or hire capital 
directly, but they can purchase merchandise on credit, as it is 
termed, with no other check than their own judgment of what 
is honest and safe. Even in England, where a far more rigid 
rule of credit is applied than in the United States, Mr. Tooke 
says, " a person having the reputation of capital enough for his 
regular business, and enjoying good credit in his trade, if he 
takes a sanguine view of the prospect of a rise of price in the 
article in which he deals, and is favored by circumstances in 
the outset and progress of his speculation, may effect purchases 
to an extent perfectly enormous compared with his capital. 
The conditions requisite are, that the market should be a large 
one, and the article susceptible of great fluctuation of price 
from political or physical causes ; and in fact, it is only articles 
of this description that are the subject of speculations suffi- 
ciently extensive to attract notice." Thus, when the difficul- 
ties with China, in 1839, produced a speculation in tea, one 
dealer was known, "who, having a capital not exceeding 
<£ 1,200, which was locked up in his business, had contrived 
to buy 4,000 chests, value above £ 80,000 " ; and this was 



A COMMERCIAL CRISIS. 441 

done without the outlay of actual capital or currency in any 
shape. Another example given is that of an operation in the 
srrain market between 1838 and 1842. " There was an in- 

o 

stance of a person who, when he entered on his extensive spec- 
ulations, was, as it appeared by the subsequent examination of 
his affairs, possessed of a capital not exceeding £> 5,000, but 
being successful in the outset, and favored by circumstances in 
the progress of his operations, he contrived to make purchases 
to such an extent, that, when he stopped payment, his engage- 
ments were found to amount " to over half a million sterling. 
These are English examples ; I need not quote American 
ones, as the memory of any of our merchants will supply in- 
stances quite as striking as any that have been mentioned. 

But to this doctrine, that credit may be indefinitely extended 
without any expansion of the currency, it may be objected, 
that credit is necessarily limited by the amount of disposable 
capital in the country ; for no more capital can be borrowed 
than there is capital to lend. Exactly so ; but then the instan- 
ces given are, Tiominally, not loans, but purchases ; and conse- 
quently, the limit to them is, not the amount of capital which 
is seeking a borrower, only interest being expended for it, but 
the amount of merchandise which is seeking a purchaser, and 
on which profits are expected. To buy on credit is only to 
borrow on the hard condition of paying for the sum borrowed, 
not merely the rate of interest, which is but six per cent, but 
the rate of profit, which equals at least ten or twelve per cent. 
Hence a merchant w^ho would immediately refuse to lend a 
brother merchant f 5,000 on interest for six months, will very 
readily sell him $ 50,000 worth of goods on six months' credit. 
Thus there is literally no limit to the expansion of credit ; the 
whole amount of merchandise offered for sale, both in this 
country and in foreign lands, may be sold on credit, under the 
temptation of the high prices, and consequent expectations of 
large profits, which are caused by a speculating fever ; and hav- 
ing been sold once in this manner, the purchasers may then 
sell them again to another set of speculators, and again, till 
their value is indefinitely multiplied. What a mountain of 
indebtedness may thus be created, without the intervention, at 
least before some months have elapsed, of one dollar of cur- 
rency, or even any demand upon the banks for additional 



442 



EFFECT OF SPECULATION ON PRICES : 



loans ! Large importations are only one mode of obtaining 
credit, or " borrowing money," as it is termed ; and commercial 
crises are oftener produced by them than by any other means. 
Here in the United States, there is a peculiar fund for 
speculation, and a means of creating fictitious values to any 
extent, without any alteration, for the time, of the quantity 
or value of money. I refer to the sale of the public lands 
by the national government. Up to June, 1853, about 235 
millions of acres of these lands had been sold, or granted away 
for schools, military bounties, and internal improvements ; and 
there remained about as much more to be disposed of, exclu- 
sive of the immense regions comprised within the limits of 
Oregon, California, Utah, New Mexico, Kanzas, and Nebraska. 
As the great tide of emigration constantly rolls westward, these 
lands assume value according as the region in which they are 
situated promises to become more or less populous. I have al- 
ready explained, in treating of the theory of rent, that the value 
of the lands is determined by the distribution of the popula- 
tion ; and this distribution is determined either by nature or 
the works of man, according as one spot is more fertile, more 
salubrious, better supplied with water and timber, or better sit- 
uated with reference to navigable streams, railroads, and great 
lines of communication between different districts. Obviously, 
there is great room for the exercise of sagacity and foresight in 
determining how soon and how quickly any particular district 
will be peopled, or for enterprise in executing the public works 
which will draw emigrants thither. There are numerous in- 
stances in which a populous village or city has sprung up within 
ten years upon lands which, at the beginning of that period, were 
unoccupied forest or prairie, and could be obtained at the gov- 
ernment price of $ 1.25 an acre. Reckoned as village or town 
lots, this land may be worth one or two thousand dollars an 
acre. Here, then, in the possibility of buying land in the wil- 
derness at a merely nominal price by the acre, and selling it 
within a few years at a high valuation by the square foot, is 
an unbounded and most attractive field for speculation ; and 
the records of the Land-Office show how far it has been carried. 
Between 1840 and 1850, the average number of acres sold by 
the government each year was less than two millions ; and 
even this probably exceeded what was actually required for 



A COMMERCIAL CRISIS. 443 

the increase of the population. But in 1885, twelve millions, 
and in 1836, over twenty millions, were thus disposed of. At 
what average price the purchasers from the government either 
sold, or expected to sell, the land to those who were to buy of 
them, it were vain to conjecture. But if they anticipated only 
a tenfold return, which is a very low estimate, it follows that 
their operations, during the two years, created speculative or 
fictitious values amounting to 320 millions of dollars. In 
1854 - 5, in consequence of the rapid extension of railroads at 
the West, and the large grants of land by Congress in aid of 
these improvements and for military bounties, these specula- 
tions have been renewed and extended even to a greater 
amount than before ; and owing to the decline in the value of 
money, and to the almost incredible amount of the immigra- 
tion from Europe, it is probable that the expectations of the 
speculators have been in a great measure fulfilled. 

All these immense operations might have been carried on 
without creating any perceptible increase of the circulation. 
The government, indeed, sold land only for cash ; but then its 
price was very low, and most of the land was not purchased 
of it, but received as a gift, in grants for the extension of rail- 
roads and in bounties ; and the grantees and original purchas- 
ers sold again on long credit, receiving their pay in annual 
instalments distributed over so many years as not to occasion 
at any one time any pressure upon the loan market. In respect 
even to the amounts received from the government sales, it 
may be observed, that, as they fell very far short of the aggre- 
gate annual expenditure by the government, they might have 
been all defrayed or offset by the payments due to public con- 
tractors and for military and naval services, without occasion- 
ing the transfer of a single dollar in coin or bank-bills. In fact, 
many payments for land were thus made by drafts upon the 
Sub-Treasmy which had been issued in the ordinary course of 
government expenditure. 

Enough has been said to demonstrate the possibility of spec- 
ulative purchases being made to any extent, and of prices being 
consequently enhanced to the highest point which they have 
ever attained before a commercial crisis, without any percepti- 
ble expansion of the currency. Sufficient evidence may be cited 
to prove, also, not only that this is the possible operation of 



444 EFFECT OF SPECULATION ON PRICES : 

the market, but that it has been the actual result. The opin- 
ion prevails very generally, both in England and this country, 
that the amount of the circulation is very much increased 
when a speculative fever is at its height, and that prices rise 
only in consequence of this increase ; but nothing can be fur- 
ther from the truth. "It may help us to form some judgment 
on this point," says Mr. Mill, " if we consider the proportion 
which the utmost increase of bank-notes in a period of specu- 
lation bears, I do not say to the whole mass of credit in the 
country, but to the bills of exchange alone.* The average 
amovint of bills in existence at any one time is supposed con- 
siderably to exceed a hundred millions sterling. The bank- 
note circulation of Great Britain and Ireland is less than thirty- 
five milhons, and the increase in speculative periods at most 
two or three " millions, — evidently not enough to raise general 
prices one per cent, and hardly to produce a perceptible effect 
upon the price even of any one commodity of large consump- 
tion, such as cotton, flour, sugar, tea, or any other that is liable 
to be affected by speculative movements. 

The published returns of the Bank of England, which give 
the average amount of the circulation for every week in the 
year, afford curious proof of the correctness of our position. 
In 1847, there was a monetary crisis in England, which, with 
one exception, that of 1825, was severer than any that had 
been experienced since the commencement of the century. 
There were two periods of stricture or panic in the course of 
the year, the one occurring towards the end of April, and the 
other in October, the intervening period being one of compar- 
ative quiescence. " The effect of the severe contraction of ac- 
commodation," says Mr. Tooke, " was to paralyze nearly all 
transactions on credit throughout the country." Every descrip- 
tion of property, (food only excepted, as the crops had been 
deficient,) rapidly fell in value to a very great extent. " It 
would not be easy," remarked Lord Ashburton, " to estimate 
this depreciation, extending over all merchandise, stocks, rail- 

* Bills of exchange, it should be observed, perform the same office in England 
which promissory notes do in this country, their number and amount indicating to 
some extent, though not entirely, the extent of the purchases that have previously 
been made upon credit, and the returns from the Stamp-Office making it possible to 
estimate very nearly the average amount of them in circulation at any one time. 



A COMMERCIAL CRISIS. 445 

road shares, &c. ; it probably would not have been overstated 
at from ten to twenty per cent ; but what was worse, it para- 
lyzed this property in the hands of the possessors, rendering it 
unavailable towards meeting their engagements, and thus pro- 
duced, in many cases, pecuniary sacrifices much beyond the 
mere depreciation of the value of the property itself." Yet it 
is a curious fact, that the average amount of the notes of the 
Bank of England, and of all the banks of issue in the United 
Kingdom, in the hands of the public, was greater during the 
stricture than in the intervening period ; and was very nearly 
equal to the average of the circulation in the years 1845 and 
1846, when the speculation in railroad stock, which was one of 
the chief causes of the crisis, was at its height.* Mr. Danson 
says : " During those months in which the pm-chases and sales 
of railway property were most numerous and extensive, while 
everybody was buying and selling shares, and the current rate 
of interest was only 2| per cent, that portion of the circulating 
medium which consisted of Bank of England notes was but 
slightly, if at all, increased ; and it reached its greatest amount 
when the prices of shares were lowest, when everybody had 
ceased to speculate, when the number and amount of current 
transactions were reduced to the lowest point by discredit, and 
when the current rate of interest for first-class bills had risen 
firom 2| to 4J per cent." 

The experience of the United States agrees perfectly with 
that of England, in proving that the circulation of bank-notes 
is not perceptibly expanded in periods when commerce is brisk, 
speculation rife, and the rates of interest are low, — in one 
word, when it is usually said that " money is plenty " ; and 
that it is not restricted, but usually somewhat increased, when 
a crisis ensues, and the rates of interest are raised to the highest 

* The average of the Bank of England circulation for the six weeks ending Au- 
gust 14, 1847, (a period of quiescence,) was £ 19,600,000 : and in the six weeks end- 
ing November 20, (a period of panic,) it was £ 20,900,000. The aggregate bank- 
note circulation of the United Kingdom for the month ending August 14, amounted 
to £34,500,000, and in that ending November 6, to £36,700,000. Tor the four 
weeks ending April 24, (the first period of panic,) the Bank of England circulation 
was 21 millions, and that of all the banks of issue was 38.9 millions. The average 
circulation for 1846, which the currency doctors would call " the year of expansion," 
was, for the Bank of England, 21.1 millions; for all the banks, 39.6 millions. See 
the table appended to Tooke's History of Prices from 1839 to 1847 inclusive, p. 448. 

38 



446 EFFECT OF SPECULATION ON PRICES : 

point, and when, on account of the great difficulty of meeting 
pecuniary engagements, banltruptcy is frequent. It will be 
generally admitted, that 1853 was a year of the former charac- 
ter, being a period of advancing prices, few failures, general 
speculation in railroad stocks and other securities, and having 
all the usual signs of commercial prosperity. The aggregate 
circulation of all the Massachusetts banks in September of this 
year was about $ 21,200,000. The following year, 1854, was 
of the opposite character, being a time of great financial dis- 
tress, which steadily increased, till, in December, it amounted 
to a panic. Now the total circulation of the Boston and the 
country banks in this unlucky year never fell below 23 millions 
of dollars ; in July, it amounted to 25 millions, and early in 
December, when the crisis was at its height, it was 24^ mil- 
lions. A period of quiescence began in the spring of 1855, 
and continued nearly to the close of the year ; speculation was 
repressed, but the rates of interest were low, and it was easy 
to obtain loans. Yet in April of this year the circulation had 
fallen off" to about 21| millions, and early in September it was 
less than 23 millions.* 

It is not, then, the want of money which occasions distress 
and bankruptcy in a commercial crisis, or when the rates of 
interest are very high ; for the returns show that the amount 
of the circulation is usually increased at such periods, though 
the difference, whether of excess or defect, is too slight to have 
any perceptible effect upon the markets. But the real cause 
of the distress is the insufficiency of the disposable capital in 
the market to meet the sudden increase in the demand for 
loans, which is occasioned when the time arrives for paying off 
the excessive purchases on credit that have been made during 
the fever of a general speculation. The notes of hand and 
bills of exchange, which were so freely and thoughtlessly given 
when prices were advancing, and when it was expected that 
they would advance still higher, must come to maturity, usu- 
ally in six months or less ; and then come the pressure and 

* As the law now requires a weekly report from the Boston banks, and a monthly 
report from the banks out of Boston, to be made on oath to the Secretary of State, 
and published in the newspapers, we have the means of ascertaining their condition 
at any period, which formerly was impossible. See American Almanac for 1855 
and 1856. 



A COMMERCIAL CRISIS. 447 

the panic. As it was the unusual amount of these private 
" promises to pay," and the extravagance of the purchases in 
which they originated, that first produced the enhancement 
of prices, so now the demanded fuljEilment of them causes pri- 
ces to recede, and makes speculators eager to sell, and multi- 
plies the applications to banks and usurers for loans. The 
whole distress is then imputed to " the tightness of the money 
market," though the amount of money in circulation is just as 
great as ever, probably greater, and though money has been as 
passive, or has played as insignificant a part in the matter, as 
the carts and ships in which the merchandise that was bought 
on speculation is transported. The speculator who makes an 
eager appeal to a bank for assistance, does not ask that the 
circulation, or bank issues, shall be increased for his sake ; he 
does not want coin or bank-notes particularly, but will be en- 
tirely satisfied with a check which will suffice to take up his 
note, and the only effect of which will be to transfer, either at 
that bank or another, a certain amount of the deposits from the 
credit of one person to that of another, without adding a dollar 
to the circulation. Every one knows, that, in a large commer- 
cial city, nearly all promissory notes are paid in this manner, 
or, if bank-notes are used, it is only to be carried across the 
entry, or across the street, to another bank, without remaining 
an hour in cnculation. In such case, a bank-note for $ 100 or 
$ 1,000 is only a substitute for a check, and is hardly entitled 
to be called " money " ; it is only a ticket for the transfer of 
credit, and has no effect whatever on prices. 

When, in a period of financial pressure, a complaint is made 
of " the scarcity of money," it means only that capital is wanted 
on credit, or, in other words, that there is a greater demand for 
loans than the banks and other dealers in loans can supply. 
There is always a certain amount of disposable capital in the 
market, seeking investment in loans. It is accumulated chiefly 
by savings from income, which are made by persons who are 
unwilling or unable to manage their capital for themselves by 
engaging in industrial enterprises, and therefore seek to lend it 
to others. A considerable portion of this floating fund is accu- 
mulated in the banks, making up both their capitals and de- 
posits, and thus constituting far the larger part of what they 
are able to lend to their customers. Hence it is, that what are 



448 EFFECT OF SPECULATION ON PRICES : 

called the " loans and discounts " of the banks so largely exceed 
the amount of their circulation. Cut off altogether their power 
of issuing bank cvirrency, and their ability to make loans would 
not be diminished, on an average, more than one fifth. The 
aggregate loan by the Massachusetts banks amounts almost 
precisely to one hundred millions, and their average circulation, 
as we have just seen, is only about twenty-three millions ; and 
from this last sum must be deducted about three millions for 
the specie reserves, which are kept only for the security of their 
circulation, and would come into active use, or be disposable 
for loans, if that circulation were taken away. 

And here we can see another reason why the banks are un- 
able to increase or diminish at pleasure the issue of their notes. 
It is only by reducing their loans and discounts immensely, 
that they can be sure of acting at all upon their outstanding 
circulation ; cut off thirty millions, for instance, from the loans 
and discounts by the Massachusetts banks, and as seventy 
millions would still remain in the hands of their customers, the 
larger part of the twenty-three millions of their notes might 
continue to circulate ; in other words, the portion of the loan 
which was withdrawn might be paid back to them almost ex- 
clusively in coin or the notes of banks in the neighboring 
States, or by transferring a large amount from their deposits. 
On the other hand, when they are not diminishing, but extend- 
ing their loans, their circulation may come back upon them in 
spite of themselves. 

Hence, also, if the complaint against the banks for undue 
" expansion " in a speculating period, and undue " curtailment " 
when the crisis comes, means anything, it means an expansion 
and curtailment, not of bank currency, but of bank loans and 
discounts. There would be some truth in this statement, 
though it may stiU be said, that the difference in the amount of 
the loan is not large enough to have any considerable effect 
on prices. The loan from the Massachusetts banks, which a 
little exceeded ninety-three millions early in December, 1854, 
when the financial pressure was at its height, rose to over 
ninety-nine millions in September, 1855, when the market was 
quiescent and the rates of interest low. The difference was 
only six per cent, and the amount of six millions could not 
raise general prices more than one or two per cent. And even 



A COMMERCIAL CRISIS. 449 

this difference is not to be laid to the fault of the banks, but 
of their customers, who, when the demand for loans was great- 
est, withdrew five millions from their deposits, and over one 
million from their specie reserves. The banks, who only play 
the part of brokers in this matter, bringing borrowers and lend- 
ers together, made smaller loans because less capital was placed 
at their disposal. 

The other portion of floating or disposable capital, which is 
in the market for borrowers at varying rates of interest, but 
does not get into the banks, or is only lodged there temporarily 
on deposit, is much more fluctuating in amount, and is the real 
agent or subject of that " expansion " and " contraction " which 
are so much complained of. During the period of quiescence 
which follows a commercial crisis, people go on quietly making 
savings from income, and, having learned from recent woful 
experience the foUy of new speculations and hazardous invest- 
ments, they prefer not to engage in any enterprise on their own 
account, but only to lend their surplus funds on good mort- 
gages or first-rate personal security, and, in this last case, only 
for short periods. But as almost everybody at such a time is 
afraid of speculation, new enterprises are not started, trade is 
quiet, and there is not, consequently, much demand for loans, 
and that little demand is fuUy supplied by the banks from their 
regular funds. Lenders then compete with each other, and 
strive to tempt merchants and manufacturers to borrow by of- 
fering the use of capital at low rates of interest. Even the 
banks, under such circumstances, are sometimes compelled to 
reduce their rates of discount, in order to find borrowers and 
keep their capital employed. Purchases of approved stocks 
already for some time in the market, whether of national or 
State funds, banks, manufactories, or railroads, have no effect 
in diminishing the amount of disposable capital in the loan- 
market, but only transfer the ownership of portions of it to 
other individuals. If A, who seeks to invest $ 50,000, cannot 
find a borrower who will take it on good security and pay him 
a satisfactory rate of interest for it, and finally decides to buy 
Reading Raikoad bonds, or New York State stocks, he only 
transfers his 1 50,000 to B, who sells him these bonds or stocks, 
and who will now come into the loan-market to find a bor- 
rower for the funds which he has received. The supply of dis- 
38* 



450 



EFFECT OF SPECULATION ON PRICES 



posable capital, then, will be just the same as before. K, how- 
ever, a State, a city, or a railroad comes forward to contract a 
new loan, and thus issues an additional amount of stocks or 
bonds, the capital which it receives is permanently taken out 
of the loan-market, and expended, perhaps in constructing 
water-works, new roads, or other internal improvements. 

I have already explained the phenomena of the gradual de- 
clension of the rate of profit, which takes place in every coun- 
try as it advances in opulence and gradually extends its enter- 
prise over the whole field for the profitable employment of fixed 
capital. This declension is soon manifested in the loan-market, 
steadily operating against the rate of interest, and causing it, 
though with many fluctuations, to move slowly downwards. 
The savings from income, which at first, for the most part, 
were invested as soon as made, either in constructing roads, 
docks, and canals, or in furnishing manufactories with costly 
machinery, are finally driven more and more into the market 
as floating capital, seeking borrowers, because it is found that 
the work of fixed capital is so nearly completed, that no farther 
application can be made of it except at great hazard, or with a 
prospect of very smaU dividends. After the loan-market be- 
comes gorged, however, and the losses experienced in former 
speculations are gradually forgotten, the low rates of interest 
and the facility of obtaining loans again allure the multitude 
into hazardous enterprises. New schemes are brought forward, 
and old ones resuscitated. Docks, copper-mines, new railroads, 
laying out new cities, cutting lumber, driving tunnels through 
mountains and under rivers, opening trade with Australia, and 
many similar undertaldngs, are proposed as excellent means of 
investing capital and obtaining large returns. Merchants catch 
the infection, and make large importations of goods. The 
scale of expenditure is enlarged, as people are tempted to spend 
in proportion to their expected gains ; and thus prices begin to 
rise. The merits of every new scheme are so loudly trumpeted, 
that those who first invested in them are enabled to sell out 
their shares at a high profit. The plethory of the loan-market 
is so far relieved, that the rates of interest rise, and the cautious 
and prudent capitalists are as much delighted as the daring 
speculators. 

After a time, the period of payment arrives. The notes 



A COMMERCIAL CRISIS. 451 

which have been given for heavy purchases on credit, come to 
maturity, and anxious borrowers find to their dismay that the 
tide in the market has turned, and there is now very little float- 
ing capital to be had, and that only at high rates. There is an 
immense increase in the demand for loans, and a great diminu- 
tion of the supply, as many capitalists have caught the infec- 
tion, and preferred to speculate with their funds, rather than 
to lend them on interest. The banks, indeed, continue to lend 
as usual, as their capital exists for no other purpose ; but their 
means are strictly limited, and they can only supply the ordi- 
nary amount of accommodation to their customers, whose 
wants are sadly increased. They are besieged with applica- 
tions which they cannot grant, and are then blamed for having 
first contributed to heighten the excitement, by offering loans 
at low rates some months before, and now refusing to lend 
except in small sums and on harder terms. The charge is 
wholly unjust, for by furnishing a steady supply to the loan- 
market, not enlarged in a period of speculation nor diminished 
in a time of pressure, their operation is like that of the balance- 
wheel in a machine, tending to deaden the shock of transition, 
and to moderate both extremes. The difficulties which the 
speculators labor under compel them to make forced sales of 
their shares or of the merchandise which they have bought at 
inordinate prices ; and this eagerness to sell creates suspicion, 
and soon leads to an exposure of the rottenness of many of 
the schemes in which they have engaged. These fictitious 
values are destroyed, and their fancied wealth disappears like 
a dream. Public confidence being thus shaken, a general de- 
sire to realize property, as it is termed, or to convert mere evi- 
dences of debt into coin or other actual possessions, ensues ; 
and then follow many failures, and general agitation and dis- 
tress. 

The cycle of events which I have described, is so far inde- 
pendent of any action of the currency, that it might all occur 
in such a city as Amsterdam was, when it had but one bank, 
and that one only a bank of deposit, in which the merchants 
lodged all then' surplus funds, and effected all payments among 
themselves by a mere transfer of credit on the books. There, 
also, a period of quiescence in trade might cause an accumula- 
tion of floating capital, and a consequent facility of obtaining 



452 . EFFECT OF SPECULATION ON PRICES : 

loans on low rates, which would finally induce reckless specu- 
lation ; and this is sure to be followed by all the phenomena 
of a commercial crisis. To expect that men will learn wisdom 
from the frequent recurrence of these evils, so as to be able to 
avoid them in future, would be to expect that they would 
cease to make savings from income, or that the accumulation 
of floating capital thus produced would no longer reduce the 
rates of interest, or that no persons would be found willing to 
engage in hazardous undertakings when they can make unlim- 
ited purchases on credit, and are importuned to accept loans on 
easy terms. 

It must not be supposed, however, that recldess speculation 
is the only cause of disturbance in the loan-market, rendering 
the suj)ply for a while inadequate to the demand. Physical 
or political causes, a failure of the crops, the breaking out of a 
war, or the return of peace, may create a sudden demand for 
capital to be sent abroad, which will so far lessen the quantity 
usually offered to borrowers as to occasion them serious in- 
convenience, and even to create a panic. For illustration, I 
need only borrow in part Mr. Mill's account of the crisis of 
1847. " It is not universally true," he says, " that the contrac- 
tion of credit characteristic of a commercial crisis must have 
been preceded by an extraordinary and irrational extension of 
it. The crisis of 1847 belonged to another class of mercantile 
phenomena. There occasionally happens a concurrence of 
circumstances tending to withdi'aw from the loan-market a con- 
siderable portion of the capital which usually supplies it. These 
circumstances, in the present case, were great foreign payments, 
(occasioned by the high price of cotton and the unprecedented 
importation of food,) together with the continual demands on' 
the circulating capital of the country by railway calls and the 
loan transactions of railway companies, for the purpose of 
being converted into fixed capital and made unavailable for 
future lending. These various demands fell principally, as 
such demands always do, on the loan-market. A great, tliough 
not the greatest, part of the imported food was actually paid 
for by the proceeds of a government loan. The extra pay- 
ments which purchasers of corn and cotton, and railway share- 
holders, found themselves obliged to make, were either made 
with their own spare cash, or with money raised for the occa- 



A COMMERCIAL CRISIS. 453 

sion. On the first supposition, they were made by withdraw- 
ing deposits from bankers, and thus cutting off a part of the 
streams which fed the loan-market ; on the second supposition, 
they were made by actual drafts on the loan-market, either by 
the sale of securities, or by taking up money at interest. This 
combination of a fresh demand for loans with a curtailment of 
the capital disposable for them, raised the rate of interest, and 
made it impossible to borrow except on the very best security. 
Some firms, therefore, which, by an improvident and unmer- 
cantile mode of conducting business, had allowed their capital 
to become either temporarily or permanently unavailable, be- 
came unable to command that perpetual renewal of credit 
which had previously enabled them to struggle on. These 
firms stopped payment ; their failure involved, more or less 
deeply, many other firms which had trusted them; and, as 
usual in such cases, the general distrust, commonly called a 
panic, began to set in." 

An occasion to make large foreign remittances may arise 
either from a sudden increase of imports, or from a sudden 
diminution of exports. In the United States, as we may al- 
ways raise more food than is necessary for our own consump- 
tion, it is more likely to proceed from the latter cause ; in Great 
Britain, where the crops in the most fruitful seasons are hardly 
sufficient to feed the people, and are liable to frequent though 
partial failures, the former cause is most likely to operate. 
Here, a financial pressure is occasioned by an excess of food, 
or a want of demand in Europe for our sm-plus crops, so that 
we are called upon to remit gold instead of exporting provis- 
ions ; there, it arises from a scarcity or dearth, which compels 
the people to buy grain of other nations. But in either case, a 
remittance of gold is not a necessary or a characteristic feature 
of the phenomenon. In the long run, commodities are always 
purchased with commodities ; we pay for our imports with our 
exports. But the call being a sudden one for the remittance 
of actual values, and not having anything else to send abroad 
except at a great sacrifice, we send bullion or coin, and the 
drain comes upon the bank reserves ; but the next year, we 
have to buy the specie back again, by either restricting our 
imports, or increasing our exports. The bank reserves being 
lessened by this abstraction of coin, those institutions usually 



454 EFFECT OF SPECULATION ON PRICES : 

diminish their discounts, in order to provide for their own secu- 
rity. But in 1847, the Bank of England, though £ 7,000,000 
in coin had been taken from its coffers to send to America and 
the Baltic for food, adopted the bolder policy of increasing both 
its discounts and its cu-culation ; or rather, the latter was in- 
creased in spite of itself, in order to fill up the vacuum both in 
the loan-market and the currency which had been created by 
these foreign remittances.* The financial pressure would oth- 
erwise have been much greater; and in fact, it was at last 
stopped entirely by an announcement from the Bank, under 
the sanction of the government, that it was prepared to make 
further advances, though at a high rate of interest. 

And generally, it may be observed, that the drain of specie, 
by falling upon the bank reserves, though it should produce a 
slight decrease of the circulation, is not so great an evil as it 
would be if it were all subtracted from the active circulation, 
or if domestic commodities should be immediately sent abroad 
at a great sacrifice to pay the debt, through our inability to 
make the remittance in bullion. These reserves, being locked 
up in the vaults, have no effect whatever on prices, and a large 
portion of them might be sent abroad without the loss being 
perceived at the time, — certainly without its being indicated 
by any change whatever in the market. True, the money 
must all be bought back again, ultimately, to provide for future 
emergencies of the banks of a different character ; and it will all 
be bought back again within a year, either by restricting our 
imports or increasing our exports, so as to make up for the 
temporary excess of the former, which first produced the drain 
of specie. We send abroad the money at first, only as a con- 
venient article to serve for a sort of pledge or security that we 
will soon pay our debts in commodities. "When the promise 

* Mr. F. Baring stated in Parliament, December 3, 1847, that "the amount of 
bullion in the Bank on September 12, 1846, was ^16,354,000, and that, on April 17, 
1847, it was reduced to £9,330,000, being a diminution of £ 7,024,000. Now I take 
the same dates with respect to the circulation of notes, and I find that, on September 
12, 1846, the amount was £20,982,000, and on April 17, 1847, it was £21,228,000, 
being an increase of £ 246,000. Perhaps it was impossible, before the bill [of 1844] 
was in practical operation, to see how the reserve of notes would operate ; but it cer- 
tainly never entered into the contemplation of any one then considering the subject, that 
£7,000,000 in gold should run off, and yet that the notes in the hands of the public would 
rather increase than diminish." 



A COMMERCIAL CRISIS. 455 

is fulfilled, the pledge is returned. We wanted what the 
financiers call "an extension," in order that we might have 
time to raise the flour, cotton, and tobacco wherewith to pay 
our debts ; and by sending the specie as a pledge, we obtain 
the delay that we wanted. 

The result of this whole discussion may be summed up in 
the following proposition : — that the function of money as a 
means of effecting' exchanges is entirely distinct from its function 
as a standard or measure of value. For the former, which is its 
chief purpose, the relative abundance or scarcity of money is 
a matter of no importance whatever. If we have more money 
than we need, a portion of it will lie idle, either in the vaults 
of banks or in the pockets of individuals. If we have less 
money than might seem necessary, we can get along very weU 
with substitutes, and can even dispense with the use of money 
altogether. In other words, money is a convenience, but not 
a necessity. Thus, if we have no gold or silver coin, bits 
of paper, called bank-notes, will do just as well ; if we have 
not even bank-notes, then checks, bills of exchange, book-cred- 
its, transfers of credit on the books of a bank or a clearing- 
house, wiU enable us to purchase goods, and to make or receive 
payments ; and if we have not even these contrivances, we 
can still barter commodities directly for commodities, as we 
already do, to a considerable extent, through the institution of 
mutual accounts current. Turn the matter as we may, we 
cannot impute all the evils in the commercial world to money 
as the universal scape-goat, or hope to get rid of them by tin- 
kering the currency. Trade is an exchange of merchandise ; 
and money plays as insignificant a part in it, to recur to a 
former illustration, as the carts in which the merchandise is 
transported. If we have not carts enough, we can carry the 
goods on our backs ; if we have not money, we can still ex- 
change, though with some additional trouble. When we 
spend, we consume, not money, but commodities that gratify 
our tastes and appetites. When we contract debts, we bor- 
row, not money, but the goods which we purchase with the 
money. And when we find any difficulty in paying our debts, 
the scarcity of money is not at fault, but the want of capital, 
and this want arises from our own improvidence. 

The other function of money, that of serving as a standard 



456 



EFFECT OF SPECULATION ON PRICES. 



or measure of value, is performed through a delicate compari- 
son of the value of all other commodities with that of the two 
precious metals, for the purpose of ascertaining, not so much 
the relation of merchandise to specie, as the relation of all the 
different articles of merchandise to each other. It is useful to 
know that a barrel of flour is worth ten dollars, and a coat 
twenty dollars, not because it is a fact of any practical impor- 
tance that a barrel of flour will buy ten times 345.6 grains of 
pure silver, or that a coat will buy twenty times this quantity, 
because very few persons have occasion to buy silver at all ; 
but as the taUor and the farmer most frequently barter coats 
for flour, it is convenient for them to know the exact relative 
values of these two commodities. For this latter purpose, the 
amount of silver in a dollar might be increased or diminished 
to any extent, and it would answer the end equally well. Con- 
sequently, in relation to this function also, the abundance or 
scarcity, the high or low value, of the precious metals, concerns 
us very little. For the purposes of trade between different 
nations, or for comparison of international values, moreover, 
this alteration of the quantity of gold and silver passing under 
a given name is a matter of no importance, as the bullion-mer- 
chants take care, by equahzing their distribution, that these 
two metals shall have the same relative value to other com- 
modities aU over the commercial world. It is only, as we have 
seen, for transactions extending over long periods of tirrue, that 
it is necessary to ascertain if this relative value has undergone 
any alteration. 



THE PROTECTIVE SYSTEM. 457 



CHAPTER XXIV. 

THE DOCTRINE OF INTERNATIONAL EXCHANGES j THE POLICY OF 
ENCOURAGING DOMESTIC MANUFACTURES BY LAYING DUTIES ON 
IMPORTED GOODS. 

The explanation which has been given in former chapters 
of the cu-cumstances which determine prices, and of the course 
of exchange with foreign countries, has prepared the way for a 
fuller consideration of the general question between free trade 
and the protective system. I have already endeavored at some 
length to show,* that the general doctrine of free trade is per- 
fectly reconcilable with the policy of granting protection under 
special circumstances ; that it does not conflict, for example, 
with the system of imposing for a time duties on imported 
goods in order to foster the manufacturing interest here in 
America, which cannot flourish, or even subsist to any great 
extent, without such favor. I now resume the subject, in order 
to consider more particularly the effects of such a system upon 
our intercourse with other nations. This brings us at once to 
an explanation of the theory of international values and ex- 
changes, — a recent and valuable addition to the science of 
Political Economy, and one which has lately compelled the 
old-fashioned advocates of free trade to make numerous and 
very significant concessions to their opponents. It has struck 
away the great prop of the universality of then- system, and has 
compelled them to acknowledge that the importation of foreign 
manufactures may be excessive, even for a long period of years ; 
and that the inevitable consequence of such excess is to depress 
the prices of om' exports in all foreign markets, and thus to 
neutralize all our natural advantages for producing these arti- 
cles of export, by compelling us to exchange them for foreign 
goods upon the most disadvantageous terms. 

Hitherto, the evil of excessive importation has been held to 
be, that it caused a drain of specie from the country, or what 



* See ante, pp. 25-27, and Chapters VUL and XIV. 

39 



458 INTERNATIONAL EXCHANGES : 

was technically called " an unfavorable balance of trade." To 
this unwise argument the reasonable answer was, that a drain 
of specie to any injurious extent is impossible ; for an unnat- 
ural efflux of money must raise the value of what is left, and 
thereby lower the money price of all goods which are exchanged 
for it. The fall of prices thus occasioned would inevitably 
tempt foreigners hither to make their purchases, and the goods 
thus bought must be paid for by remittances of coin or buUion, 
so that the current of specie would be turned the other way. 
Money is a self-distributing commodity, which always appor- 
tions itself among commercial nations in exact proportion to 
the wants of each. 

In theory, this reasoning is perfectly sound ; and though 
many attempts have been made to refute it, we know of none 
which have had even the appearance of success. Practically, 
however, as all intelligent merchants will admit, very large im- 
portations are found to be attended Avith very great evils. Ex- 
perience has proved that they tend to depress the prices of 
domestic products, to paralyze domestic industry, and even to 
bring on commercial crises, which are equally disastrous to our 
agi-icultural, commercial, and manufacturing interests. To 
account for these facts, which are inexplicable upon the narrow 
principles of Adam Smith and McCulloch, we must go back 
to first principles, and, after gaining clear ideas of the nature of 
commercial exchanges in general, must see how the aggregate 
of our own exchanges with other nations is effected. 

In the preceding chapter, it has been shown that prices are 
determined by the relation of the demand to the supply, and 
that an extension of the market, or an increase of the demand, 
can be obtained only by submitting to a fall of prices, so as to 
bring the article within the reach of a greater number of con- 
sumers. In any market, only a certain quantity of goods at a 
given price can be consumed ; if more goods are forced upon 
the market than it naturally requires, the price must fall, and 
then the consumption may be very much increased. 

It has also been proved, in ti-eating of biUs of exchange, (pp. 
319 - 329,) that we really purchase commodities with comm.od- 
ities, — that we pay for our whole imports with our whole ex- 
ports, — that if, in our traffic with any one country, (China, 
for instance,) our imports much exceed our exports, then we 



THE PROTECTIVE SYSTEM. 459 

pay the balance, not in money, but by transferring to that 
country the debt due to us from another country, (England, for 
instance,) with which our trade is such that our exports exceed 
our imports. It is only the balance of the immensely long 
" account current" of our trade with all foreign countries what- 
soever, which is struck in money ; and this cash balance can- 
not be more than an insignificant fraction of either side of the 
account. The advocates for free trade have always insisted, 
that we must buy merchandise of England, not only to induce, 
but even to enable, England to buy merchandise of us, — that 
we must buy of any country in order to sell to her, and must 
buy as much as we sell. But it is not so. It is not necessary 
that we should take of English manufactured goods enough to 
pay us for all the cotton, tobacco, and wheat which we sell to 
England ; — England is able, though of course she is not very 
willing, to pay us the balance in tea from China, cojfifee from 
Brazil, hemp from Russia, or whatever other article, from what- 
ever other country, we see fit to require. "We can compel her 
to pay us in whatever commodities we may select ; for the 
articles which we seU to England — cotton, tobacco, and 
wheat — are of prime necessity to her, and most of which she 
cannot obtain elsewhere. As our exports must pay for our 
imports, the only point to be considered is, how we can dispose 
of the exports to most advantage, or obtain for them the largest 
return of the imports. 

The cost to us of our domestic products is, the labor that is 
expended upon their production. But the cost to us oi foreign 
products is, not the labor which has been expended upon their 
production, but the labor which we must expend upon the ar- 
ticles that are given in exchange for those products. 

" The advantage of an interchange of commodities between 
nations," says Mr. Mill, " consists simply and solely in this, — 
that it enables each to obtain, with a given amount of labor and 
capital, a greater quantity of all commodities taken together. 
This it accomplishes by enabling each, with a quantity of one 
commodity which has cost it so much labor and capital, to 
purchase a quantity of another commodity, which, if produced 
at home, would have required labor and capital to a greater 
amount. To render the importation of an article more advan- 
tageous than its production, it is not necessary that the foreign 



460 INTERNATIONAL EXCHANGES : 

country should be able to produce it with less labor and capi- 
tal than ourselves. We may even have a positive advantage 
in its production ; — but if we are so far favored by circum- 
stances as to have a still greater positive advantage in the pro- 
duction of some other article which is in demand in the foreign 
country, we may be able to obtain a greater return to our labor 
and capital by employing none of it in producing the article 
in which our advantage is least, but devoting it all to the 
production of tliat in which our advantage is greatest, and 
giving this to the foreign country in exchange for the other. 
It is not a difference in the absolute cost of production, which 
determines the interchange, but a diflerence in the comparative 
cost." 

The inhabitants of Barbadoes, for instance, favored by their 
tropical climate and fertile soil, can raise provisions cheaper 
than we can in the United States. And yet Barbadoes buys 
nearly all her provisions from this country. Why is this so ? 
Because, though Barbadoes has the advantage over us in the 
ability to raise provisions cheaply, she has a still greater advan- 
tage over us in her power to produce sugar and molasses. If 
she has an advantage of one quarter in raising provisions, she 
has an advantage of one half in regard to products exclusively 
tropical ; and it is better for her to employ all her labor and 
capital in that branch of production in which her advantage is 
greatest. She can thus, by trading with us, obtain our bread- 
stuffs and meat at a smaller expense of labor and capital than 
they cost ourselves. If, for instance, a barrel of flour cost ten 
days' labor in the United States, and only eig-ht days' labor in 
Barbadoes, the people of Barbadoes can still profitably buy the 
flour from this country, if they can pay for it with sugar which 
cost them only six days' labor ; and the people of this country 
can profitably sell them the flour, or buy from them the sugar, 
provided that the sugar, if raised in the United States, would 
cost eleven days' labor. This is a striking example to show 
the benefit of foreign trade to both the countries which are par- 
ties to it. Tte United States receive sugar, which would have 
cost them eleven days' labor, by paying for it with flour which 
costs them but ten days. Barbadoes receives flour, which 
would have cost her eight days' labor, by paying for it with 
sugar which costs her but six days. If Barbadoes produced 



THE PROTECTIVE SYSTEM. 



461 



both commodities with greater facility, hut greater in pre- 
cisehj the same degree, there would be no motive for inter- 
change. 

Now let us apply these principles to the trade between Eng- 
land and the United States. We will suppose, what is the 
fact, that this country has a very considerable advantage over 
England in the production of cotton, flour, and tobacco; 
while England has some advantage (a comparatively trifling 
one) over us in manufactured goods ; — we say, a compara- 
tively trifling advantage, because cotton and tobacco cannot be 
cultivated in England at all, and one of these articles (cotton) 
cannot be purchased by her in sufficient quantities from any 
other country than the United States ; while we can manufac- 
ture all the goods that are now manufactured in England. 
Some of them (the coarser cottons, for instance) we can even 
manufacture more cheaply than the English ; but most of the 
finer fabrics, unquestionably, owing to the lower profits of cap- 
ital and the lower wages of labor, can be more cheaply manu- 
factured in England. To simphfy the matter as much as pos- 
sible, we will take but one article, flour^ as the representative 
of all the commodities that America sells to England ; and 
but one article, cloth, as the representative of all the goods 
which England sells to America ; — that is, we will suppose 
the trade between the two countries to consist exclusively of 
these two articles. As it has been proved, that, in foreign 
trade, we barter dnectly commodities for commodities, we can 
fortunately leave money out of the case altogether, and esti- 
mate the value or cost of the two only by comparing them 
with each other. We will suppose, on account of the re- 
spective advantages possessed by the two countries, that the 
production of one barrel of flour in England costs as much 
labor and capital as would suffice for the manufacture of ten 
yards of cloth ; while in America, one barrel of flour can be 
produced for three fifths of its cost in England, —or, in other 
words, for as much labor and capital as would, in England, 
manufacture only six yards of cloth. Whether this state of 
things proves that, in America, the cost of flour is less, or the 
cost of cloth greater, than in England, is a point of no impor- 
tance. We can simplify the matter still further, then, by sup- 
posing that cloth can be manufactured to equal advantage, or 
39* 



462 INTERNATIONAL EXCHANGES : 

with the same amount of labor and capital, in both countries. 
Our supposition is, that, so long as each country produces both 
commodities for itself, the American price of a barrel of flour 
will be six yards of cloth ; while the English price of a barrel 
of flour will be ten yards of cloth. 

Now, if a system of free trade bet\veen the two countries be 
established, the two commodities will be exchanged for each 
other at the same rate both in England and America. The 
price will be equalized between the two countries ; but at what 
point will it be equalized ? Shall the English price be estab- 
lished in America, or shall the American price be established 
in England ? Or shall a price intermediate between the two 
be established ? Either of these three suppositions is possible. 
The Englishman can afford to give ten yards, for it will cost 
him that amount of labor and capital to produce the flour in 
his own country, or for himself. On the other hand, the 
American can aflbrd to sell the flour for six yards, because this 
quantity of cloth, if produced in his own country, would cost 
him as much labor and capital as a barrel of flour. Suppose 
that, by the higgling of the market, the price in both countries 
is fixed at seven yards. The advantage of the trade is then 
shared between the two countries, but it is shared unequally. 
America gains one yard on each barrel, as she now receives 
seven yards of cloth for the labor which formerly produced but 
six ; England gains three yards on each barrel, for the flour 
now costs her but seven yards a barrel, while it formerly cost 
her ten. We will suppose that, at these rates, America sells 
100,000 barrels of flour to England, and receives in exchange, 
of course, 700,000 yards of cloth. The demand on each side 
must be just sufficient to carry off" the supply received on 
the other. So long as England wants only this amount of 
flour, and the United States only this quantity of cloth, the 
interchange will continue at this rate, giving three fourths 
of the profit to Great Britain, and only one fourth to this 
country. 

But suppose the demand to vary in one of the two countries ; 
suppose that England, on account of the increase of her popu- 
lation, now needs 150,000 barrels of flour, which America is 
perfectly able and willing to furnish. But England can pay 
for this larger purchase only by sending over more cloth ; the 



THE PROTECTIVE SYSTEM. 463 

United States, however, by the supposition, are fully supplied 
with the 700,000 yards which they received before ; they can- 
not buy any more at the old rate of seven yards for one barrel. 
How, then, is England to obtain the additional quantity of 
flour that she needs ? She has but one course to pursue ; 
she must offer her cloth at a reduced price, knowing that 
this reduced price will bring it within the reach, of a larger 
class of consumers, who wiU take off the increased quantity 
that she needs must sell. Instead of seven, she will now 
offer nine yards of cloth for a barrel of flour. At this price, 
the Americans may be willing and able to buy 1,350,000 
yards of cloth, which will furnish the 150,000 barrels of 
flour required by England ; or, if we do not need this large 
quantity of cloth, England has only to sell this quantity at 
the reduced price to other countries, and obtain in exchange 
for it tea, coffee, sugar, and other products, which (at this 
reduced price ag-ain') we do need. If we do not receive the 
benefit of the change of price in cloth, we shall receive it in 
other commodities. 

There is, indeed, one other mode by which England might 
obtain the additional quantity of flour required without lower- 
ing the price of her cloth. Suppose that the demand of the 
United States for cloth had been kept down to 700,000 yards 
by a protective tariff, the revenue from which paid the ex- 
penses of our government, though it somewhat enhanced the 
price of cloth to our people. Suppose, further, that our gov- 
ernment, learning that England was inclined to purchase more 
flour of us, in order to favor that inclination, should deter- 
mine to abolish the tariff, and admit cloth duty free, or at a 
nominal duty. Then, indeed, the demand for cloth might 
be so far increased, that England might obtain her 150,000 
barrels of flour by paying for it at the rate of seven yards to 
a barrel. We should, indeed, sell the increased quantity of 
breadstuffs, but receive in payment only 1,050,000, instead 
of 1,350,000, yards of cloth. By this wise act of legislation, 
also, we should be obliged to pay the expenses of our gov- 
ernment by direct taxation, should have our domestic man- 
ufactures ruined, and the profits of our agricultm-ists much 
diminished by the influx into their business, and the conse- 
quent competition, of the disbanded workmen from our man- 
ufactories. 



464 INTERNATIONAL EXCHANGES : 

Those who have followed the reasoning thus far will have 
perceived, that our suppositious all along have been only dis- 
guised statements of recent facts. The great increase of the 
English population in consequence of the misery of that pop- 
ulation, the policy of the English landlords in depopulating 
their vast estates by driving the peasantry into the towns, thus 
substituting manufactures for agriculture as their employment, 
and the deficient harvests of 1846 and 1847, — all these causes 
combined, created an evident necessity for a much enlarged 
importation of breadstuffs into Great Britain. These facts 
were recognized almost simultaneously by the leading English 
statesmen of both parties, — by Lord John Russell and Sir 
Robert Peel ; and they led, first to a partial, and in a very 
short time to a total, abolition of the corn laws, — those laws 
which had existed for over thirty years, avowedly to check our 
sale of provisions to England, and thereby to enhance the price 
of English manufactures in America. But under the Amer- 
ican tariff of 1842, a much enlarged supply of grain from this 
country could not be obtained without a corresponding mate- 
rial reduction in the price, not only of English manufactures, 
but of all the other foreign products needed in this country 
which had been purchased for us with English manufactures. 
The English, therefore, were eager to procure the repeal or 
modification of this tariff, and succeeded in persuading Amer- 
ican statesmen that such a step would be only a fair return for 
the abolition of the corn laws, and that, in fact, it was neces- 
sary, in order to induce and enable the Enghsh to buy more 
grain and flour from us. This argument would have had more 
force, if it had been shown how they could avoid making this 
enlarged purchase at any rate. But these representations were 
successful ; Congress did substitute the tariff of 1846 for that 
of 1842 ; and this lowered the price of English manufactures 
in this country so far, that our increased consumption of them 
paid for the whole enlarged supply of breadstuffs needed by 
Great Britain. The result was, that a conjuncture of events, 
which ought to have operated greatly to the advantage of the 
United States, and to the disadvantage of England, really 
paralyzed our domestic manufactures, almost destroying those 
of iron, and gi-eatly injm-ing those of cotton and wool, while 
the English manufactures have never been more prosperous 



THE PROTECTIVE SYSTEM. 465 

than since the abrogation of the corn laws. Why should they 
not be ? The demand for their products in the United States 
has greatly increased, while the reduction of price, through 
which alone this increase of demand could have been effected, 
has really taken place, not through the English manufacturers 
receiving less for their goods, but through our own modifica- 
tion of our tariff. We have thereby just thrown away the 
benefit that would naturally have accrued to us from the in- 
creased English demand for our provisions, and we have near- 
ly crushed our own manufactures into the bargain. 

I have now stated the doctrine of international values in the 
most precise manner, carefully analyzing each step of the pro- 
cess, in order to show that there was no gap in the reasoning. 
But as the theory of the matter is necessarily complicated and 
abstruse, I will now state it over again in a more general way, 
in order to be more fully understood. 

America produces chiefly raw material, because she has the 
advantages of a more extensive territory, and a more fertile 
soil ; England produces chiefly manufactured goods, because 
she has the advantages of more capital, longer experience, and 
cheaper labor. (I must now use numbers and measures almost 
at random, for convenience of brief calculation ; but any num- 
bers and denominations will answer equally well to illustrate 
the principle with.) In consequence of their respective advan- 
tages, we will suppose that England must give the labor vested 
in ten pounds of manufactured goods for one hundred-weight 
of raw material ; while the labor vested in six pounds of such 
goods would raise or buy one hundred-weight of raw material 
in America. Now the doctrine of free trade, (which is in it- 
self a perfectly sound and just doctrine, if applied to two coun- 
tries which are similarly situated in every respect,) if applied 
in this case, would teach the Americans to give themselves 
exclusively to the production of raw material, and the English 
exclusively to manufactures, on the ground that each could 
purchase of the other what it would then need, more profitably 
than it could produce that article for itself. Let us suppose 
that the Americans adopt this advice, and raise nothing but 
raw material. What will be the consequence ? 

As every civilized nation must consume more value vested 
in manufactured goods than in raw material, (without reckon- 



466 INTERNATIONAL EXCHANGES : 

ing tea, coffee, and tropical products, which must be brought 
from abroad,) it is evident that we must be constantly pressed 
to pm-chase from foreign countries more than we can easily 
pay for by selling to them raw material. In order, then, to 
enlarge the foreign market for our cotton, tobacco, and flour, 
— in order to bring them within the reach of a larger class of 
consumers, — we must offer them on the most favorable terms. 
We must offer them at the American price, (of one hundred- 
weight for six pounds of manufactures,) rather than at the 
foreign price, which they would otherwise naturally assume, 
of one hundred-weight for ten pounds. At this last price, it 
may be assumed that we could dispose of only one thousand 
tons of the raw material ; and for this amount we should 
procure only 200,000 pounds of manufactured goods ; — not 
enough to supply our wants. But in order to obtain more, we 
must be able to sell more ; and in order to sell more, we must 
offer the raw material at a lower price, so as to enable a greater 
number of foreigners to purchase it. If we offer it at the rate 
of six pounds to the hundred- weight, we might be able to sell, 
not merely one thousand tons, but ten thousand ; and this, 
at the price mentioned, would give us 1,200,000 pounds of 
manufactured goods, which might perhaps be sufficient. The 
principle is, then, that whichever nation is under the strongest 
temptation or necessity to buy from others, — whichever needs 
to buy more value than it can readily sell of its own products 
to pay for, — that nation labors under a disadvantage in the 
traffic, and must offer its own commodities at the lowest pos- 
sible price. 

" At the lowest price which is possible," we say ; for the 
theory shows clearly, that there are limits beyond which the 
price can neither be elevated nor depressed. We cannot sell 
for less than six pounds, because the labor and capital expend- 
ed in producing a hundred-weight of raw material would, with 
all our disadvantages in manufacturing, enable us to manufac- 
ture six pounds of such goods for ourselves. Neither can we 
obtain more than ten pounds, because the English labor and 
capital bestowed on ten pounds of these goods would enable 
the English, in spite of their disadvantages in regard to raw 
produce, to raise one hundred-weight of raw material for 
themselves. Within these limits, then, is the sphere of opera- 



THE PROTECTIVE SYSTEM. 467 

tion of a protective tariff; beyond them is the sphere of free 
trade. Prohibitory duties are always unwise ; for the object 
is to check consumption, not to destroy foreign trade. The 
purpose of a protective tariff is to secure to each nation the 
use of its own natural advantages ; or rather, to prevent it 
from throwing these natural advantages away, by too assidu- 
ous and exclusive cultivation of them, the effect of which 
would be, that the other arts and branches of industry would 
perish by neglect. An analogy may here be traced between 
the true policy of a nation in developing aU its resources, and 
the true system of education for cultivating aU the mental 
faculties of a man. One faculty of a chUd, the memory or 
the imagination, may be developed by accidental ckcum- 
stances to an inordinate extent. An unwise parent, lilce the 
injudicious partisans of free trade, would foster and enlarge 
this inequality, instead of striving to diminish it ; and would 
thereby not only leave the other faculties to die out by disuse, 
but would make the one talent preternaturally developed a 
curse rather than a blessing. A community cannot prosper 
by devoting all its energies to the cultivation of but one of 
the three great branches of industry. Devoted to agriculture 
alone, or to manufactures alone, or to commerce alone, it 
makes no difference; — in either case, it will have but one 
class of articles to sell, while it will have two classes of arti- 
cles to purchase ; — in either case, it will have a greater sur- 
plus of one kind to dispose of, than other nations will be wilKng 
or able to purchase, except at the lowest possible price ; — and 
to sell at the lowest possible price, as we have now demon- 
strated, is just to sacrifice the whole of the natural advantage 
with which we are endowed by Nature, and to put ourselves 
on a par with other countries in this respect, whUe we are be- 
low them in every other respect. 

On this point, the history of England is as full of instruc- 
tion as that of our own country. The English peasantry have 
been driven away from then* natural pursuits and mode of life 
in the fields, and have been forced to become operatives in the 
towns. English manufactures have thus been developed to a 
prodigious extent; and the consequence is, that England is 
importuning every government in the world to throw down 
its barriers of protection, and to receive manufactured goods at 



qOOp> 




468 INTERNATIONAL EXCHANGES '. 

a marvellously cheap price, — a price much below their natu- 
ral cost of production, if English labor were remunerated at a 
fair rate. But it is not thus remunerated ; the wages of Eng- 
lish operatives have, of late years, been reduced to the point 
where starvation is ever imminent ; and bewildered by the 
lamentable consequences of this state of things, astonished to 
find general misery where their theory of free trade led them 
to expect general prosperity, the English economists have had 
recourse to such doctrines as those of Malthus and Ricardo to 
explain away the failure of their prognostications, and have 
actually discovered that all the evil must be attributed to an 
inevitable cause, — to the over-population of the earth. What 
has been the fate of England in regard to manufactures, may 
be our own condition in respect to agriculture, if we do not 
become wise in time. 

That I am not here advocating a protective policy to an ex- 
tent which will impeach the truth of all the leading doctrines 
of Political Economy, as that science is usually taught, must 
appear from the limitations of the theory which have been al- 
ready laid down, and from the fact that this theory is frankly 
accepted even by those English economists who axe the stout- 
est advocates of the general doctrme of free trade. For proof, 
I quote from John Stuart Mill. 

" K it be asked," he says, " what country draws to itself the 
greatest share of the advantages of any trade it carries on, the 
answer is, — the country for whose productions there is in 
other countries the greatest demand, and a demand the most 
susceptible of increase from additional cheapness. Li so far 
as the productions of any country possess this property, the 
country obtains all foreign commodities at less cost. It gets 
its imports cheaper, the greater the intensity of the demand in 
foreign countries for its exports. It also gets its imports cheap- 
er, the less the extent and intensity of its own demand for them. 
The market is cheapest to those ivhose demand is small. A 
country which desires few foreign productions, and only a lim- 
ited quantity, wliile its own commodities are in great request 
in foreign countiies, will obtain its limited imports at extremely 
small cost, — that is, in exchange i'or the produce of a very 
small quantity of its labor and capital." * 

* Mill's Political Economy, Vol. II. p. 131. 



THE PROTECTIVE SYSTEM. 469 

Consequently, he argues, " the opening of a new branch of 
export trade ; or an increase in the foreign demand for our 
products, either by the natural course of events, or by an abro- 
gation of duties ; or a check to our demand for foreign commodi- 
ties by the laying on of import duties at home, or of export duties 
elsewhere ; — these, and all other events of similar tendency, 
would make our imports no longer a balance for our exports ; 
and the countries which take our exports would be obliged to 
offer their commodities (specie among the rest) on cheaper 
terms, in order to reestablish the equation of demand ; and 
thus we should obtain money cheaper, and acquire a generally 
higher rate of prices. Incidents the reverse of these would pro- 
duce effects the reverse, — would reduce prices." * 

It appears, then, that it is even more for the interest of 
American planters and agriculturists, than of the manufacturers 
themselves, that duties should be laid on the importation of 
foreign manufactured goods, so as to restrict the amount of 
such importation. We thus pm'chase our imports more 
cheaply, or, what is the same thing, as commodities are actu- 
ally bartered for commodities, we sell our exports at a higher 
price. The effect of the duty is, not to raise the price of the 
imported articles, but to cheapen them, the duty actually fall- 
ing in great part upon the foreign manufacturer. During the 
year ending June 30, 1854, for instance, we sold to other na- 
tions, cotton to the amount of 93 millions of dollars, tobacco to 
the amount of 10 millions, and vegetable food nearly equalling 
66 millions ; the total exports of the produce of the United 
States that year, excluding gold and silver coin, were about 215 
millions. Our total imports retained for consumption during 
the same period (deducting what was reexported) amounted 
almost exactly to 276 millions. The diflference between these 
two sums, 61 millions, being evidently too much to be attributed 
to the profits of trade and costs of transportation, we ran in 
debt for a considerable portion of the balance, and had to pay 
the debt by exporting over 38 millions of California gold. The 
average duty imposed on all the articles that pay any duty is 
about 25 per cent. 

Now let us see what would have been the probable effect of 

*Ibid.,-p, 145. 

40 



470 INTERNATIONAL EXCHANGES : 

doubling the duty upon all the imported articles which come in 
competition with American manufactures. The value of such 
articles probably did not exceed 100 millions ; the other im- 
ports, amounting to 176 millions, are of such commodities — 
tea, coffee, drugs, raw materials, and the like — that we should 
be obliged, under any circumstances, to purchase them of for- 
eigners. To double the duty on the former articles would 
probably reduce the amount imported from 100 millions to 50 
milUons, so that the revenue of our own government would 
not be affected by the alteration. But England, from whom 
we obtain most of the goods which come in competition with 
our home manufactures, would still need to obtain from us as 
much vegetable food, meat, and tobacco, and nearly as much 
cotton and California gold,* as ever ; and her sale of her own 
manufactures to the United States being diminished to the ex- 
tent of 50 millions, she would be obliged to offer to all nations, 
the United States included, these manufactures, and other com- 
modities also, at lower prices. Compelled to seek an extension 
of the foreign market, or, in other words, to create an increased 
demand in other countries, for whatever she has to sell, to the 
extent of over ten millions sterling, she must submit to a re- 
duction of price, which will bring her commodities within the 
reach of a larger class of consumers. American consumers, for 
instance, would not take even half as much as before, if the 
price in this country were enhanced to the fuU extent of the 
additional duty, — that is, 25 per cent. England would have 
to bear probably 15 per cent of this duty, or to reduce her 
prices in this proportion, leaving the American price to be en- 
hanced 10 per cent, which would be encouragement enough to 
set additional manufactories in motion in the United States, 
so as to produce at home the 50 millions' worth cut off from 
our imports. 

Already, then, we see the fallacy of the oft-repeated assertion 
by the advocates of free trade, that a protective duty raises the 
price both of the home commodity, and of the foreign one 
which continues to be imported, to the full extent of that duty. 

* I say, nearly as much gold as ever, because the United States, having become 
perhaps the greatest gold-producing country on earth, must continue to export that 
metal, and other countries must continue to receive it from her, till money and 
prices are equalized all over the commercial world. 



THE PROTECTIVE SYSTEM. 471 

If the impost be not so great as to be virtually prohibitive, — 
in which case we admit it would be impolitic, — the home 
price cannot be increased to the extent of more than one half, 
seldom more than two fifths, of the duty. Everywhere the ine- 
quality in the distribution of wealth is such, that the class of 
persons having an income, for instance, of $ 2,500 a year, is 
not, as we might be tempted by a superficial glance at the sub- 
ject to believe, only 25 per cent less numerous than the class 
having $ 2,000 a year, but is probably not more than half as 
great. If, then, the price should rise to the full extent of the 
duty, say 25 per cent, the total consumption would not be 
more than half as great, as only those would buy who have an 
income at least one fourth larger than the smallest income pos- 
sessed by any of the former purchasers ; but a portion of what 
is consumed being now of home production, the importation 
of the foreign article would fall off considerably more than 50 
per cent. q^ 

This reasoning, it is true, applies only to the somewhat finer 
and more costly articles of manufacture, for which alone a pro- 
tective duty is needed. In respect to breadstuff's and other ar- 
ticles of prime necessity, we have already seen that a very con- 
siderable enhancement of price is needed in order materially 
to lessen the consumption. The sale of the cheaper and more 
common products of manufacturing industry, also, may not be 
much checked by an addition of 20 or 30 per cent to their price, 
as their cost forms but a small part of the total expenditure of 
any class of persons. But the principle holds true in the only 
cases in which we need to apply it. 

Thus far, however, it "would seem that the American con- 
sumer is injured to a certain extent, being compelled to pay at 
least 10 per cent more for the article, whether of home or for- 
eign manufacture, than he paid before the additional duty of 
25 per cent was imposed. But the principles now established 
prove, that he is compensated for the increase of price in this 
instance, by a necessary reduction of the price of other com- 
modities. In order to pay for the American products which 
she must obtain, England must be able to make up, in other 
commodities, for the 10 millions sterling worth of her manu- 
factures which we will no longer take. But our market being 
already fully supplied with these articles at their present prices, 



472 INTERNATIONAL EXCHANGES ! 

she must tempt us to take more of them by reducing their 
price. She must sell her manufactures cheaper, not only to 
the United States, but to China, Java, Brazil, and Cuba, and 
thus obtain more tea, coffee, and sugar, which she can offer to 
us at rates so low as to increase our consumption of them to 
the required extent. These articles being in universal use, the 
reduction in their cost to us will be more than a compensation 
for the additional 10 per cent which we must pay for cotton, 
wool, and iron manufactures. Our domestic manufactures 
being thus restored to a prosperous condition, and many addi- 
tional hands being requii-ed, as well as more capital, to prose- 
cute them, the competition in agriculture will be slackened, 
and the price of om- agiicultural exports will naturaUy rise. 
Our sale of raw cotton will not be diminished, because the re- 
duced price of cotton manufactures in Europe will increase the 
consumption of that article there more than enough to make 
up for a slight reduction of the quantity sold in the United 
States. 

The statement of these principles may seem novel ; but a 
little reflection will satisfy us, that we have long been familiar 
with the operation of them on a large scale. How is it that 
England has been able to extend her manufacturing enterprise 
to its present vast dimensions, except by reducing the price of 
its products so low as to cut off by competition the rival man- 
ufactures of every country in Europe, Asia, and America, that 
has not been wise enough to foster its domestic industry by a 
protective tariff? While her own industry and skill w^ere not 
developed enough to enable her to defy rivalry, she maintained 
as rigid a system of protective and prohibitive duties as was 
established in any country on earth. One of the just com- 
plaints which ultimately produced the American Revolution, 
was, to adopt the language of Lord Chatham, that " England 
should not suffer her colonies to manufacture even a horseshoe 
for themselves." She then obtained the raw products of her 
own colonies on easy terms, by prohibiting them from selling 
to any other customer than herself; and those of other coun- 
tries she bought at prices almost as low, by carefully keeping 
her purchases from them within the narrowest possible limits, 
so that they were compelled to sell cheap in order to sell 
enough to pay for their imports. Afterwards, when so much 



THE PROTECTIVE SYSTEM. 473 

capital and skill were embarked in her manufactures that they 
no longer dreaded competition, her protective system was abol- 
ished; after her defensive armor was no longer needed, she 
put it off, and endeavored to persuade other nations, whose 
education in skill and industry had hardly begun, to do the 
same, consoling them for the consequent ruin of their domestic 
enterprises, by the assurance that she could manufacture for 
them cheaper than they could manufacture for themselves. 
The only point forgotten in this argument was, that their 
purchase of English manufactures would be thereby so much 
increased, that they would be obliged to sell their own raw 
products on the lowest possible terms in order to pay for them. 
I borrow from an English authority a clear statement of the 
limitations under which alone the theory of free trade is appli- 
cable. " If all the countries of the globe were actually, or were 
ready to become, constituent portions of one and the same 
great family, the theory of the free-traders might seem plau- 
sible. But the plain truth is, that the whole analogy is forced 
and unnatural. By treating the human race as one great fam- 
ily, we are not following, but departing from, the apparent 
design of Providence, as indicated in the dispensations which 
everywhere present themselves to our observation. In these 
we are totally unable to discover any trace of this ideal incor- 
poration. Separated by natural and defined boundaries, often 
by broad tracts of ocean ; differing even in physical organiza- 
tion ; inhabiting portions of the earth's surface varying in tem- 
perature from the fervid heat of the torrid zone to the almost 
unendurable cold of the arctic reigons ; above all, absolutely 
unintelHgible to each other by variety of language ; — the Deity 
seems to have stamped on the features of nature and of hu- 
manity, in unmistakable characters, that nations shall remain 
separate and distinct, each pursuing, under the restraints only 
of moral obligations and just laws, its own separate interests ; 
and thus, in beautiful harmony with the similar arrangements 
among individuals of the same nation, each, however uncon- 
sciously, contributing to that general good which is but the 
aggregate of the separate good of its parts." * 

* Quart. Review, No. CLXXI. p. 86. It would be easy to quote many similar ad- 
missions made by those who supported the policy of Sir Robert Peel in abolishing the 
English corn laws. Thus, the Hon. G. Smvthe, in a speech at Canterbury in 1847, 

40* 



474 INTERNATIONA I, KXCHANGES : 

The situation of the ITiiilecl States is so peciiliar, that argu- 
ments drawn from European experience for the guidance of 
our conduct are apt to be wholly fallacious and unsound. We 
can more profitably go for a lesson to the other side of Ihe hab- 
itable glob(^, — to a comitry even more widely separated than 
we are, by a waste of ocean, from the arts and industry of 
Kngland and her European rivals; — I mean, to British India. 
There we find a deficiency of capital, an abundance of fertile 
territory, a consequent surplus of agricultural produce, and a 
lack of that skill in maimfacture which can only be gained 
by long experience under a strict protective policy, such as 
England has enjoyed for nearly two centuries ; — all these cir- 
cumstances strongly reminding ns of corresponding features in 
our own condition. Now, the (lOvernor-General of India, in a 
correspondence with the East India Company on the subject 
of the Dacca weavers, makes this statement : — " Some years 
ago, the East India Company annually received of the produce 
of the looms of India to the amount of six to eight million 
pieces of cotton goods. The demand gradually fell, and has 
now ceased altogether. European skill and machinery have 
superseded the produce of India. Cotton piece-goods, for ages 
the staple manufacture of India, seem for ever lost; and the 
present snfferiiiii- to nnnierous classes in India is searcel// to be 
paralleled in the histori/ of commerce.-^ 

I have introduced this example especially because it throws 
light upon another reason, already urged in another place (pp. 
191, 102), for the establishment of a protective policy, in 
America as well as in India ; — I mean, the great difierence in 
the cost of transportation between raw materials and manufac- 
tured goods, which operates greatly to the advantage of the 
country producing the latter, because manufactures have much 
the greater value in the smaller weight and bulk. Rice, wheat, 
cotton, and sugar are among what might be called the greatest 
natural exports of India, as they are produced there very 



remnrkcd : *'T cannot quit this subject of Free Trade without expressing my opinion 
on its abstract principle. I by no means hold that the principle of Free Trade is 
absolutely true, or that it is of universal apidication. If 1 were an American, the 
citi/cn of a youn<; country, I should be a Protectionist. If 1 were a Frcucliman, the 
citizen of an old country witli its industry undeveloped, I should equally be a Pro- 
tectionist." 



THE PROTECTIVE SYSTEM. 475 

cheaply in great abundance. The average price of wheat at 
Calcutta is less than fifty cents a bushel ; but the freight and 
other charges of transporting that bushel to England, and selling 
it there, amount to about eighty cents. England, therefore, 
though she has abolished her corn laws, enjoys a virtual pro- 
tective duty against wheat from India, amounting to 160 per 
cent. The cost of transporting English manufactured goods to 
India cannot, on an average, exceed 40 per cent of their value. 
The difference between these two rates, amounting to 120 per 
cent, is, of course, really prohibitive in its effects ; and India 
wheat is not brought to England at all. The difference in the 
cost of transporting raw materials and manufactured goods 
across the Atlantic is certainly not so great as in sending them 
round the Cape of Good Hope ; but it is enough to give a very 
important advantage to the traffic to England. Our chief arti- 
cle of export, raw cotton, is a very bulky one ; and even bread- 
stuffs and tobacco are more expensive, both for land and sea 
carriage, than the cheapest manufactures of the loom. I speak 
of the carriage by land as well as sea, because the greater part 
of the raw material that we export is raised far in the interior, 
and the cost of bringing most of it to the Atlantic coast far ex- 
ceeds that of carrying it over the ocean. On the other hand, 
our chief articles of import from Great Britain, with the possible 
exception of pig and bar iron, are of the finer species of manu- 
facture, and therefore contain great value within little weight 
and bulk. It would be difficult, if not impossible, to estimate 
the average charges of transportation of so many different arti- 
cles ; but it would be perfectly safe to consider the difference 
as twenty per cent on the whole value of the goods in favor of 
England ; that is, as an English protective tariff to that extent. 
In other words, if we send a million of dollars' worth of raw 
material to England, we must pay thirty per cent on its value 
for carriage, before it is admitted ; while, on a million of dol- 
lars' worth of fine manufactured goods received in exchange, 
the English have to pay but ten per cent. Consequently, on 
the very principles of free trade, which means nothing but trade 
with equal advantages to the two parties, we ought to levy a 
general protective duty of twenty per cent. 

One other consideration in favor of what may be called the 
American system must be mentioned, because it affords an 



476 INTERNATIONAL EXCHANGES t 

answer to an argument frequently and strenuously urged on 
the other side. It is said that a protective duty raises the cost 
to the consumer, not only of those goods which are imported, 
and which therefore pay the duty, but of those also which are 
manufactured within the country, and sold at an enhanced 
price, because they are in a gi'eat measure protected against 
foreign competition. I have already alluded to two facts, 
which do away with most of the force of this argument ; — 
namely, iirst, that a protective duty, being designed as a check 
to injurious fluctuations of price, is graduated with reference to 
the loivest price at which the foreign commodity is ever sold, 
and not with reference to the average price. Thus, a duty of 
thirty, may not raise the average price more than fifteen per 
cent, and this last may be the whole amount of real protection 
that the American manufacturer needs ; but to secure this pro- 
tection at all times, the duty must be fixed at thirty per cent, 
because circumstances may sometimes force the foreign com- 
modity upon the market at a price fifteen per cent below its 
ordinary value. And secondly, it has just been shown that the 
English manufacturer, in order not to lose altogether his hold 
upon the American market after the duty is imposed, is obliged 
to lower his price, so that, in fact, he pays from one half to 
three fifths of the duty, instead of throwing the whole of it 
upon the American consumer. 

But further, this expression " forcing upon the market '' 
points to another fact of frequent occurrence in trade, which 
demonstrates the necessity of placing a check upon excessive 
imports. The reaction of a commercial crisis in England, 
making dealers there eager to get rid of a large quantity of 
goods at almost any price, — or the beginning of such a crisis 
in America, when the speculative fever tempts importers to ac- 
cumulate stocks to a ruinous extent, — may cause a glut in our 
market of many commodities at once, depressing the value of 
the whole exchangeable produce of the country to a degree far 
beyond the proportion which the stocks of those commodities 
bear to the aggregate of that produce. We have seen that the 
abstraction of a third part of the ordinary supply may double 
the price, or fail to raise it more than one sixth, according as 
the article is one of prime necessity, or one which people can 
easily do without. So the addition of a thuxl to the ordinary 



THE PROTECTIVE SYSTEM. 477 

stock of goods on hand may sink the price, not merely in pro- 
portion to that increase, but to one half of its former amount. 
The whole stock, then, both of foreign and domestic products, 
must be sold at this ruinous sacrifice. 

I have already explained one important exception to the 
general rule, that the effect of cheapening commodities is to 
increase the sale of them, by bringing them within the reach 
of a larger body of consumers ; and this exception has an ob- 
vious bearing upon the present subject. Mr. Mill very fairly 
states the point as follows, though he does not seem to be 
aware of the whole force of the concession. " When a thing 
is bought, not for its use, but its costliness, cheapness is no 
recommendation. As Sismondi remarks, the consequence of 
cheapening articles of vanity is, not that less is expended on 
such things, but that the buyers substitute for the cheapened 
article some other which is more costly, or a more elaborate 
quality of the same thing ; and as the inferior quality answered 
the purpose of vanity equally well when it was equally expen- 
sive, a tax on the article would really be paid by nobody ; it 
would be a creation of public revenue by which nobody would 
lose." * 

Obviously, then, in respect to all articles which are used only 
for purposes of ostentation and display, the only strong argu- 
ment against a protective tariff, that it operates as a tax upon 
consumers by slightly increasing the prices of the commodities 
on which a duty is imposed, ceases to have any weight what- 
ever. If the duty were removed, consumers would save noth- 
ing, for they would abandon the use of the cheapened com- 
modity, and seek out one of higher cost, not because it is of 
superior quality or convenience, but because its high price ren- 
ders the possession of it a token of wealth. If silks are so 
high in price that fine cottons content the love of display, the 
additional amount of labor required for the production of silks 
is saved. An expensive cotton fabric gratifies the spirit of 
ostentation, of rivalry, of showing one's self as well off as one's 
neighbors, just as effectually as a cheap silk. Taxes upon this 
class of luxmies, then, cost the community nothing ; the proceeds 
of such taxes are an absolute saving. Even if the finest 

* Mill's Political Economy, Vol. II. p. 442. 



478 INTERNATIONAL EXCHANGES : 

American cottons were fifty per cent dearer than English 
goods of the same quality, a duty of fifty per cent on the im- 
ported commodity would be no tax upon the consumer. With 
the duty, he would buy the American or the English article at 
$ 1.50 a yard, and it would answer his only purpose, — would 
fully gratify his love of display. Without the duty, despising 
the cheaper article, he would purchase an English or French 
silk at $ 1.50 a yard, and would be no better off than in the 
other case ; while the government would lose the whole pro- 
ceeds of the tax, American manufactories would be stopped, 
and American workmen tlu-own out of employment. 

I am no advocate of sumptuary laws for their own sake. 
But taxation itself being essential for the support of govern- 
ment, such an apportionment of the indkect taxes among va- 
rious commodities as will discourage idle, wasteful, and luxu- 
rious consumption, is clearly expedient and just. For the 
aggregate amount expended all over the country for any arti- 
cle of luxury is increased by diminution of its price, and les- 
sened by augmentation of that price. If, for instance, the 
number of diamonds should be so much increased, that the 
price should fall one half, people would purchase more than 
twice as many of them. There would then be no real saving 
to the community, but an actual loss ; for the aggregate ex- 
penditure of the country in diamonds would be increased by 
the whole amount bought by those who should be more than 
enough to make up twice the former number of purchasers. 
On the other hand, double the price, and there would be less 
than half the former number of purchasers, and consequently 
a real saving to the community. If, then, we make the more 
costly manufactures for ourselves, instead of obtaining them 
from abroad, their price will be somewhat enhanced, there will 
be a smaller aggregate expenditure upon them, the purposes of 
luxury and ostentation will be equally well answered, and the 
prices obtained in foreign markets for our exports will be in- 
creased by the diminution of our imports, and to the full ex- 
tent of that diminution. Silks, very fine cottons and woollens, 
expensive cutlery, articles of virtu and bijouterie, and the like, 
are necessarily consumed unproductively ; we gain nothing, 
we even lose, by cheapening them. If the wages of labor can 
be kept up by raising the prices of such articles, we gain all 
round. 



THE PROTECTIVE SYSTEM. 479 

But our view of this subject would be incomplete, if some 
notice were not taken of the common arguments against lay- 
ing restraints upon importation for the encouragement of do- 
mestic manufactures. Nearly all of them may be summed up 
in the often-quoted maxims, that, as a community is made up 
only of individuals, what is most for the interest of individuals 
is also best for the community ; that individuals better than 
the government can determine what is most for their own ad- 
vantage ; and " that the maxim of buying in the cheapest 
market, and selling in the dearest, which regulates every mer- 
chant in his individual dealings, is strictly applicable as the 
best rule for the trade of the whole nation." 

That this argument may be pressed too far is very evident ; 
for if individuals were always the best judges of what then- 
own interest requires, many of them would refuse to pay any 
taxes for the support of government, and nearly all would 
claim a large reduction of the taxes which are severally im- 
posed upon them. Comparatively few have sagacity and fore- 
sight enough to perceive for themselves the truth, however 
they may be disposed to yield a passive assent to it from cus- 
tom and a respect for the authority of others, that government, 
which is throughout a system of repression and restraint, exists 
only for the common good ; that in its administration, it is 
often necessary to sacrifice the interests of individuals to the 
general welfare ; that private property, for instance, must often 
be taken for public uses ; that sometimes persons must be 
taken away from their own occupations, and be compelled to 
serve on juries, or in the army or navy, or to testify in courts 
of justice, or to expose property and life to the hazards of war, 
perhaps of a war which they consider impolitic or unjust, and 
to do a thousand other things which they regard as vexatious 
and detrimental to their private concerns. The best govern- 
ment rests much more upon prescription and the tacit assent 
yielded only from the force of habit, than upon the intelligent 
convictions of its subjects. No one's consent is asked, as soon 
as he arrives at years of discretion, whether he will submit to 
the laws which he has had no hand in making ; his submission 
is taken for granted, and he can withhold it only at the expense 
of imprisonment or exile. Peace and war must be made with- 
out consulting him, or asking how they will affect his private 



480 INTERNATIONAL EXCHANGES : 

welfare ; often the best excuse that can be offered for making 
either is, that it will promote the interests of the greater num- 
ber, though some must suffer. 

But this remark is too general to meet the whole force of the 
argument for free trade, and is introduced here only to show 
that the alleged identity of individual with national interests, 
upon which this argument is based, is not a truth of universal 
application. We may gain a better view of the applicability 
of the maxim in this particular case, by considering one of 
Adam Smith's ingenious illustrations of it, which has been so 
frequently cited as to appear almost a truism. 

" To give the monopoly of the home market," says Smith, 
" to the produce of domestic industry, in any particular art or 
manufacture, is in some measure to direct private people in 
what manner they ought to employ their capitals, and must, 
in almost all cases, be either a useless or a hurtful regulation. 
If the produce of domestic can be bought there as cheaply as 
that of foreign industry, the regulation is evidently useless. If 
it cannot, it must generally be hurtful. It is the maxim of 
every prudent master of a family, never to attempt to make 
at home what it will cost him more to make than to buy. 
The tailor does not attempt to make his own shoes, but buys 
them of the shoemaker. The shoemaker does not attempt to 
make his own clothes, but employs a tailor. The farmer at- 
tempts to make neither the one nor the other, but employs 
those different artificers. All of them find it for their interest 
to employ their whole industry in a way in \yhich they may 
have some advantage over their neighbors, and to purchase 
with a part of its produce, or, what is the same thing, with the 
price of a part of it, whatever else they may have occasion for. 
What is prudence in the conduct of every private family, can 
scarce be folly in that of a great kingdom." * 

But this comparison between individuals and communities 
is often a faulty and deceptive one, and is particularly so in 
this case. Certainly it would be unwise in an individual to 
be his own weaver, tailor, carpenter, and blacksmith ; he would 
thus lose all the advantages of a division of labor, and would 
not become skilled in any department. But this objection does 

* Weahh of Nations, p. 200. 



THE PROTECTIVE SYSTEM. 481 

not hold in the case of a community, which has only a ficti- 
tious unity, and is really made up of many individuals, who 
may distribute among themselves all the employments which 
are requisite for the production of all the commodities that the 
society needs. No one person is thus required to practise 
more than one art, and the division of labor among these indi- 
viduals is as perfect, as if the same number of trades were par- 
titioned out among so many distinct communities. StUl 
more ; as communities are separated from each other often by 
broad tracts of sea or land, should each one confine its indus- 
try to the production of a single commodity, and purchase 
whatever else it needs from rival states, all its articles of con- 
sumption but one would come to it burdened with a consid- 
erable cost of transportation ; and the sale of its own single 
product everywhere but at home would be impeded by an 
addition to its cost from the same cause. All the advantages 
of a division of labor result from a separation of employments 
among individuals, and become disadvantages in the case of 
distinct states, counties, and even towns. To one who is a 
blacksmith, it is no help, but rather a hinderance, that his next- 
door neighbor is a blacksmith also ; he has thus a competitor 
in satisfying the wants of his own village, where every me- 
chanic finds his best and most profitable customers ; and as 
blacksmiths' work is heavy, he cannot carry his wares for sale 
even to the next county or town without lessening his profits. 
The inhabitants of every country town understand their own 
interests much better than Adam Smith did. Instead of form- 
ing themselves into a settlement composed exclusively of arti- 
sans of one trade, each community has its own mason, shoe- 
maker, carpenter, shopkeeper, lawyer, doctor, and clergyman, 
and is thus not obliged to send a dozen or twenty miles in 
order to have a horse shod, a chimney built, a tooth pulled, or 
a marriage celebrated.* A Yankee farmer with half a dozen 

* I am not detailing imaginary cases. Mr. Rae, who lived a long time in Canada, 
says : " I knew two brothers whose farms or estates lay in one of the interior districts 
of that country, in the midst of its forests, and consequently at a considerable dis- 
tance, perhaps twenty or thirty miles, from artificers of any description. Having each 
of them large families and productive fanns, they had occasion for the services of 
various artificers, and had the means of paying them. Nevertheless, they very rarely 
employed them ; almost every article they required was made by some one of the two 
families. As they were prudent and sagacious men, of which they produced the best 

41 



482 INTERNATIONAL EXCHANGES : 

stout sons, acts upon the same principle, in not educating them 
all to his own employment, but maldng a mechanic of one, a 
merchant of another, a sailor of a third, sending a fourth to 
college, and keeping only one at home to be his own s.uccessor 
upon the farm. As all occupations are precarious, he knows 
that, by this com-se, he multiplies the chances of success, or 
reduces the chances of failure, for the whole family, besides 
suiting each member of it with an employment best adapted 
to his peculiar powers and inclination. 

Adam Smith's illustrations are fallacious, because they are 
drawn from extreme cases, in regard to which no one would 
think of denying the correctness of the maxim, and are then 
applied as if it were correct in every instance, though the uni- 
versality of the principle is the only point in question. Thus 
he argues: " By means of glasses, hot-beds, and hot-walls, very 
good grapes can be raised in Scotland, and very good wine, 
too, can be made of them, at about thirty times the expense 
for which at least equally good can be brought from foreign 
countries. Would it be a reasonable law to prohibit the im- 
portation of aU foreign wines, merely to encourage the making 



evidence in the general success of their undertakings, and the prosperity of the settle- 
ment of which they were at the head, I think it likely that, in this also, they had 
turned their means to the best account. In fact, as they who are familiar with the 
details of beginning settlements in North America will admit, by this plan they in 
a great measure obviated the two chief drawbacks on the prosperity of new and re- 
mote settlements, — the excessive deamess of every article not produced there, from 
the great expense attending the transport of the raw produce and retransport of the 
manufactured goods, and the serious inconvenience arising from the difficulty, in such 
situations, of supplying, when necessary, unforeseen but pressing wants. 

" Among other things which they got made on their own farms were boots, shoes, 
and leather. That they might get this done, they were at the pains and expense of 
sending one of the young men to some distance, to make himself sufficiently master 
of those trades for their purpose. They thought, however, that the cost they were 
thus put to was repaid, thrice over, by the saving of time and expense which it ef- 
fected for them, in enabling them to make, out of leather which cost them very little, 
numerous articles that they must otherwise have been constantly sending for to a 
great distance, by roads that were almost impracticable a great part of the season." 

A Frce-Trader, continues Mr. Eae, would certainly have remarked to these two 
heads of families : " You are in want, you say, of some pairs of shoes ; surely, then, 
it is best for you to purchase them at the place where you can get them cheapest. 
But by the plan you are taking, of going to a great expense to have them made at 
home, they will certainly cost you more when made there, than if bought at the 
place where you have hitherto purchased shoes." 

Any one can judge whether such advice would have been sound. 



THE PROTECTIVE SYSTEM. 



483 



of claret and burgundy in Scotland ? " Certainly not. And 
it would also be manifestly absurd to attempt to raise tea, 
coffee, pineapples, and other tropical products, in New Eng- 
land. We here labor under natural disabilities, arising from 
peculiarities of soil and cUmate, which time and practice can 
never remove or essentially diminish. But Americans can 
profitably raise and manufacture iron, steel, wool, cotton, flax, 
and silk, for the production and fashioning of which we have 
as great advantages as the EngHsh, and even greater, skill and 
capital alone excepted. We can therefore profitably spend 
time, labor, and money in the acquisition of that skUl and cap- 
ital ; that is, we can profitably submit, for a certain number of 
years, to an additional tax for this pm-pose, appearing in the 
additional price which we must for a while pay for the domes- 
tic products. 

We may turn Adam Smith's favorite mode of iUustration 
against himself, by asking if it be not as reasonable for a na- 
tion, as it confessedly is for an individual, to enter upon a course 
of education, or serve an apprenticeship, — though, during the 
period of discipline, the gains wiU be smaU, the labor severe, 
and perhaps the expenses heavy, — for the pm-pose of acquir- 
ing an art or handicraft which may afterwards be exercised 
with great profit. We suppose that the art is one for which 
the individual or the nation is sufficiently quafified by nature, 
so that merely the tact and dexterity which can only be ac- 
quired by practice are wanting. The common answer of the 
advocates of free trade to this question, 'that when the 
proper time has arrived, and sufficient capital has been accu- 
mulated, manufactures will introduce themselves, without the 
aid of protective duties,' is evasive and insufficient. It goes 
upon the supposition, that want of capital is the only obstacle 
to the immediate commencement of manufacturing enterprise, 
whereas skill is also requisite ; capital, we admit, may be accu- 
mulated in agriculture and other pursuits ; but skiU can be ac- 
quired only by actual experiments in manufacture, and those 
experiments can be tried only at considerable sacrifice. Indi- 
viduals cannot be expected to submit to these sacrifices, when 
the results of the experiment, if successful, will not accrue to 
thek exclusive advantage, but will be open to aU. In truth, 
the acquisition of manufacturing skiU is a national advan- 



484 INTERNATIONAL EXCHANGES : 

tage, though it invariably occasions a loss to the individual 
who, first in his nation, attempts to acquire it ; it is therefore 
justly paid for at the national expense, or by a protective duty, 
which insures the beginners for a limited time against over- 
whelming competition from abroad. 

Even in Great Britain, where free trade may now be said 
to be the fashionable doctrine, though it has become so only 
within the last fifteen years, and in every other civilized nation, 
these principles are carried into practical application through 
the encouragement afforded to authors and inventors, by se- 
curing to them for a limited period the exclusive right to sell 
their respective writings and discoveries. Patents and copy- 
rights, which no one thinks it improper to grant, are signal 
instances of the successful application of the principles of the 
protective system. They are strict monopolies, no one but the 
author or inventor, and his agents, being allowed to manufac- 
ture or sell the particular book or machine which is thus pro- 
tected. Consequently, they are prohibitive rather than pro- 
tective duties ; any price can be set upon the articles which the 
owner of the patent or copyright sees fit to demand. And the 
public cheerfully pay the addition thus made to the natural 
cost of the commodity, knowing that, without such encourage- 
ment, few good books would be written and few useful ma- 
chines invented, and that, at the expiration of a limited time, 
(in England and the United States, fourteen years for a patent 
and forty-two years for a copyright,) the right to make and 
vend the work will become general, and the community will 
then be the richer by the whole value of the original proprietor's 
genius and labor. But he who first introduces a particular art 
or manufacture into a country is as great a public benefactor, 
as one who subsequently invents a new process or a new ma- 
chine for executing the work at less cost. In fact, it is only 
through the enterprise of the former that the latter acquires a 
field and an occasion for the exercise of his inventive genius. 
To the capitalists who built the city of Lowell, is fairly attrib- 
utable much of the merit of the inventions which have been 
made in it, or have there first been reduced to practice ; and 
these are probably more numerous and valuable than have been 
made within the same time in any manufacturing city in the 
world. According to the census of 1850, the introduction of 



THE PROTECTIVE SYSTEM. 485 

the cotton manufacture into the United States has given em- 
ployment to nearly 100,000 persons, and that of iron to more 
than 60,000. What single invention made within the limits 
of this country has had equally important results, or has been 
carried out at equal hazard and sacrifice ? 

The reasonableness of granting patent rights and copyrights 
is thus frankly admitted by an able advocate of free trade, 
Mr. J. S. Mill. " The condemnation of monopolies," he says, 
" ought not to extend to patents, by which the originator of an 
improved process is permitted to enjoy, for a limited period, 
the exclusive privilege of using his own improvement. This 
is not making the commodity dear for his benefit, but merely 
postponing a part of the increased cheapness which the public 
owe to the inventor, in order to compensate and reward him 
for the service. That he ought to be both compensated and 
rewarded for it will not be denied ; and also, that if all were 
at once allowed to avail themselves of his ingenuity, without 
having shared the labors or the expenses which he had to incur 
in bringing his idea into a practical shape, either such expenses 
and labors would be undergone by nobody, except by very 
opulent and very public-spirited persons, or the state must put 
a value on the service rendered by an inventor, and make him 
a pecuniary grant. This has been done in some instances, 
[as when Parliament offered a reward of £ 20,000 for a method 
of finding a ship's longitude at sea] , and may be done without 
inconvenience in cases of very conspicuous public benefit ; but 
in general, an exclusive privilege of temporary duration is pref- 
erable, because it leaves nothing to any one's discretion, be- 
cause the reward conferred by it depends upon the invention's 
being found useful, and the greater the usefulness the greater 
the reward, and because it is paid by the very persons to whom 
the service is rendered, the consumers of the commodity.* 

Having conceded thus much, Mr. Mill finds himself obliged 
by consistency of reasoning to make the following additional 
admission, w^hich really covers the whole ground usually 
claimed by the advocates of a protective system in the United 
States. " The only case," he says, " in which, on mere princi- 
ples of Political Economy, protecting duties can be defensible, 

* Mill's Political Economy, Vol. II. p. 497. 

41* 



486 INTERNATIONAL EXCHANGES : 

is when they are imposed temporarily, (especially in a young 
and rising nation,) in hopes of naturalizing a foreign industry 
in itself perfectly suitable to the circumstances of the country. 
The superiority of one country over another in a branch of 
production often arises only from having begun it sooner. 
There may be no inherent advantage on one part, or disadvan- 
tage on the other, but only a present superiority of acquired 
skill and experience. A country which has this skill and ex- 
perience yet to acquire, may in other respects be better adapted 
to the production than those which were earlier in the field ; 
and besides, it is a just remark, that nothing has a greater ten- 
dency to promote improvements in any branch of production, 
than its trial under a new set of conditions. But it cannot be 
expected that individuals should, at their own risk, or rather to 
their certain loss, introduce a new manufacture, and bear the 
burden of carrying it on, until the producers have been edu- 
cated up to the level of those with whom the processes are tra- 
ditional. A protecting duty, continued for a reasonable time, 
will sometimes be the least inconvenient mode in which the 
nation can tax itself for the support of such an experiment." * 
Now with reference to the great manufactures of cotton, 
wool, iron, flax, and silk, no one affirms that Great Britain has 
any natural and inherent advantages for prosecuting them 
which are not enjoyed, in an equal or greater degree, by the 
people of this country. The English have " only a present su- 
periority of acquired skill and experience," resulting from the 
fact, that, in some of these branches of production, they had 
over two centuries the start of us, and in all the others, they 
had been at least fifty years in the field before manufacturing 
enterprise began in the United States. Even their larger com- 
mand of capital is needed only for the purpose of supplying 
foreign markets, the resources of our countrymen in this respect 
being fully adequate for the home supply, and the exclusive 
control of the home market is all that can be given by protec- 
tive duties. We have vastly larger supplies of iron ore and 
coal, and at least equal facilities for raising wool, flax, and silk. 
Cheap land and abundant water-power are also important nat- 
ural auxiliaries of manufacturing industry in this country. 

*76jt/., pp. 487,488. 



THE PROTECTIVE SYSTEM. 487 

In respect to the cotton manufacture, we enjoy an obvious 
natural advantage over Great Britain, as the raw material must 
be exported to that country, and then brought back again in the 
manufactured state, and sold here at a cost enhanced by the 
expense of twice carrying it across the ocean ; here, it may be 
spun and woven on the spot where produced. For the coarser 
cottons, also, our period of apprenticeship in the art of pro- 
ducing them is finished ; we can export them, as already men- 
tioned, and undersell the English in all foreign markets. This 
branch of industry was first introduced into the United States 
under the protection afforded by the war of 1812 - 15, when, 
our ports being virtually closed by blockade, the manufacturer 
really had a monopoly of the home market. After the peace, 
as it was apparent that the infant manufacture would be en- 
tirely destroyed by foreign competition, Congress passed the 
tariff of 1816, which imposed a duty of twenty-five per cent on 
all cotton fabrics, requking also that they should be taken at a 
minimum valuation of twenty-five cents a square yard. By the 
acts of 1824 and 1828, this minimum valuation was advanced, 
first to thu'ty, and then to thirty-five cents the square yard, and 
so continued with little modification till 1834, when the reduc- 
tion of the duty commenced. But before the tariff of 1842 
was enacted, the cheaper cottons had ceased to need any pro- 
tection, and began to be exported. In the course of only 
thirty years, the infant manufacture had grown to maturity, 
and ceased to need the aid of government. "What is more, 
the same fabrics which, thirty years ago, were held at a mini- 
mum valuation of thirty-five cents the square yard, are now 
sold at from five to eight cents, and the annual exports of them 
in 1853 amounted to nearly nine millions of dollars. There is 
every reason to believe, that an equally efficient protection, 
rendered for an equal period, to the manufactures of wool, flax, 
and iron, would produce a similar effect. These great branches 
of industry, also, if carefully nursed during the period of their 
growth, might subsequently repay the country tenfold the cost 
of their temporary protection. 

Against the favorite dogma of Adam Smith and his follow- 
ers, that individual and national interests are identical, I have 
already quoted the decisive remark of Mr. Eae, that "individ- 
uals grow rich by the acquisition of wealth previously existing ; 



488 



INTERNATIONAL EXCHANGES : 



nations, by the creation of wealth that did not before exist." 
Laws which simply permit private persons to amass wealth, 
or which favor the aggregation of property in a few hands, 
without opening any new sources of national wealth, — as by 
favoring invention and discovery, and introducing new arts 
and new processes in those formerly established, — are posi- 
tively injurious. There has been an immense emigration from 
Great Britain and Ireland during the last eight years, and it 
has doubtless been much to the advantage of those who have 
joined in it ; but who can question that their removal has been 
a serious loss to the country which they have abandoned, and 
if the drain should continue, and even increase, as it has done, 
that it would dry up all the sources of English strength and 
prosperity. Yet it is the opinion of the wisest English states- 
men and economists, that nearly all the sufferings of Ireland, 
which have led to this unparalleled exodus of her people, 
might have been avoided if other manufactures than that of 
linen could have been established there, so as to provide em- 
ployment for all classes of the population. But Irish manu- 
factures, unluckily, with the single exception that has been 
mentioned, are of later date than those of England, and, with- 
out the shield of a protective tariff, have never been able to 
advance beyond a stage of sickly infancy. Ireland has been 
reserved as a market for English manufactures, and con- 
demned to pay for them in agricultural products, while her 
own children were starving. Her present weakness and mis- 
ery may justly be regarded as a consequence of free trade with 
her over-powerful neighbor. 

" Invention," says Mr. Rae, " is the only power on earth 
that can be said to create. It enters as an essential element 
into the process of the increase of national wealth, because 
that process is a creation, not an acquisition. It does not ne- 
cessarily enter into the process of the increase of individual 
wealth, because that may be simply an acquisition, not a cre- 
ation. The assumption, therefore, that the two processes are 
perfectly similar, is incorrect." Hence, the most frequent 
cause of the increase of national wealth is the increase of the 
skill, dexterity, and judgment, and of the mechanical contri- 
vances, with which the national labor is applied. Poland is 
not so rich a country as England, not on account of any defi- 



THE PROTECTIVE SYSTEM. 489 

ciency of labor, for a Polish or Russian serf probably works as 
hard, and as many hours in the day, as an English artisan ; 
but he does not work to so good purpose. His toil, being 
that of mere tillage, taxes his muscles, but not his brains. 
" When we are told that an individual this year employs in 
agriculture double the capital which he employed last year, 
the conception which most readily presents itself to us is, that 
he now farms double the land which he then farmed, owns 
double the number of horses, cattle, farming utensils, &c., 
and has double the number of barns and other necessary build- 
ings. When we are told that a country has double the agri- 
cultural capital which it had a century ago, we cannot, of 
course, conceive that its farms are double the extent they then 
were ; neither do we conceive that its farmers have simply 
double the number of barns and other buildings, of cattle, 
ploughs, harrows, and other farming utensils, which they then 
had. We conceive a change in the mode in which its fields 
are laid out and tilled ; in the form and qualities of the stock ; 
in the construction of all the implements of husbandry ; in the 
size and arrangement of the barns and other buildings ; and 
that, through these changes, the national agricultural labor 
produces at least double the products it formerly did. It is 
this change necessarily involved in our conception of the pro- 
cess by which nations increase their capitals, and not necessa- 
rily involved in the process by which individuals increase their 
capitals, that constitutes the difference between them." * 

This view is illustrated by the account already given (Chap- 
ter XVII.) of the necessary restrictions upon the growth of cap- 
ital arising from the limitations of the field of employment. 
Even according to Ricardo's theory of rent and profits, the great 
preventive of a constant deterioration of the condition of society, 
arising from the diminished fertility of the soils to which it is 
compelled successively to resort, and from the consequent fall 
of profits, is the progress of improvement ; and it matters not 
whether this improvement takes place through the invention 
of new processes and new machines, or the introduction of 
new arts and manufactures from abroad, the condition of the 
former being the offer of satisfactory rewards to the inventors, 

* Rae's New Principles of Political Economy, p. 13. 



490 INTERNATIONAL EXCHANGES : 

and of the latter, a temporary safeguard of the introducers 
against foreign rivaby by a protective tariff. Here again I 
borrow the substance of an illustration from Mr. Rae. We 
are much richer than our fathers, because we have threshing- 
machines where they had only flails, power-looms where they 
had only hand-looms, reaping-machines where they had only, 
sickles, &c. Now the wealth which can be accumulated in 
the form of flails, hand-looms, and sickles, is very limited, 
since no more of any of these implements can be profitably 
manufactured than are wanted for specific and limited pur- 
poses. On the other hand, the wealth which can exist in the 
form of threshing-machines, power-looms, and reaping-ma- 
chines, is very considerable; — not unlimited, it is true, but 
vastly greater than the capital formerly vested in the simpler 
implements. Hence the efforts of the legislature can be profit- 
ably directed towards promoting the progress of science and 
art, and favoring the introduction of manufactures, which can 
be prosecuted only by complex and costly machinery. Gov- 
ernment efforts are needed for these ends, because, as a gen- 
eral rule, inventors and pioneers in new enterprises are poorly 
compensated by the public. 

" Individuals as well as nations," argues the same author, 
" acquire wealth from other sources than mere saving of reve- 
nue ; skill is as necessary, and consequently as valuable, a co- 
operator with the industry of both, as either capital or parsi- 
mony ; and therefore the expenditure which either may be 
called on to make, to attain the reqviisite skill, is very well be- 
stowed. But though skill is valuable both to nations and to 
individuals, there are many circumstances that render it more 
so to the former than to the latter. In the first place, it is 
more durable." The skill of an individual dies with him, 
while that of the community endures as a permanent posses- 
sion. " If it be worth while paying a considerable apprentice 
fee for the acquisition of an art which can be probably exer- 
cised only for twenty or thirty years, it must be better worth 
while to pay for one, the advantages derived from the posses- 
sion of which may be retained for hundreds or thousands of 
years." Again, the future skilled labor of an individual can- 
not be mortgaged or sold, except the laborer sell himself along 
with it, — a transaction which is not sanctioned in modern 



THE PROTECTIVE SYSTEM. 491 

times. " On the contraiy, any portion of the future revenue 
yielded by the skilled industry of a nation may be sold, and 
consequently an addition to the national skill gives a propor- 
tional addition to the command of national resources, to meet 
any sudden emergency. The produce of the general industry 
of Great Britain stands mortgaged for a sum which it would 
have appeared, a century ago, utterly impossible to conceive 
that industry could sustain, because, a century ago, it was im- 
possible to conceive the vast increase which has been made to 
the skill, dexterity, and judgment with which it was then 
directed." * 

The considerations that have now been presented tend to 
show, that the tax imposed upon a community by any protec- 
tive duty that falls short of a prohibition, is a very light one, 
as a considerable portion of it is paid by the foreign producers, 
and reappears in the additional price received for exports ; that 
it keeps up the rate of wages, and enlarges the field for the 
employment of capital ; that it prevents the business of agri- 
culture from being so overdone as to render raw material the 
only article of export, and to depress the price of this so low 
that, though the people have a rude abundance of food and 
other mere necessaries, they are deprived of most of the com- 
forts and elegances of life ; that so far as the duty bears only 
upon articles of luxury and ostentation, the tax is really paid by 
nobody, but is a creation of public revenue out of a mere change 
in the fashions and tastes of the rich ; that a protective system 
is needed only while the people are going through a period of 
apprenticeship in manufactures, and can be removed as soon 
as the necessary skill and experience have been obtained, when 
the cost of the commodities will be less than it would have 
been if the duty had never been imposed ; and that its general 
effect is to stimulate invention, to multiply the productive arts, 
and to enlarge the sources of national opulence. 

But on this great question between free trade and a pro- 
tective policy, these arguments relating only to pecuniary loss 
or gain do not merit so much notice as the considerations 
which were mentioned in the eighth chapter of this work, re- 
specting the devotion of the greater part of the people to 

* Rae's New Principles of Political Economi/, pp. 61, 62. 



492 INTERNATION'AL EXCHANGES. 

skilled or rude labor, and their consequent collection in to\STis 
and cities, or wide dispersion over the face of the country. 
Viewed in this light, I confess, the question seems to be one 
betv\-een progress in civilization and the arts, or a gradual re- 
tiu-n, I will not say to barbarism, but to that very imperfect 
stage of civilization which exists in all countries where the 
popiilation are almost exclusively devoted to agricultiue. The 
best legislative policy is that which will most effectually de- 
velop all the natiual advantages of a comitry, whether mental 
or material. It is as wasteful, to say the least, to allow me- 
chanical skill and inventive genius to remain miemployed, as 
it would be to permit water-power to rmi without ttu-ning 
mills, or mineral wealth to continue in the ore, or forests to 
wave where cotton and grain might grow luxuriantly. K the 
rude labor of husbandry is to form the principal employment 
of the people, the liigher remimeration of skilled labor in the 
arts must be sacrificed ; and this would be as bad economy as 
to turn our richest soils into sheep-pastures, or to feed cattle 
upon the finest wheat. The dispersion of the inhabitants over 
vast tracts of territory in the isolated pm-suits of agriculture, 
the great majority of them being doomed to work which 
would not tax the mental resources of a Russian serf or a 
Feejee-Islander, must be fatal, not only to the growth of 
wealth, but to many of the liigher interests of hmnanit}-. The 
hardships and privations of a Ufe in the backwoods are a fear- 
ful drawback upon that bounty which confers as a free gift a 
homestead farm AA'ith a soil that reproduces the seed a hundred- 
fold. To give full scope to all the varieties of taste, genius, 
and temperament ; to foster inventive talent ; to afford ade- 
quate encouragement to all the arts, whether mechanical, or 
those which are usuaUy distinguished as the fine arts : to con- 
centrate the people, or to bring as large a portion of them as 
possible within the sphere of the humanizing influences and 
larger means of mental culture and social improvement which 
can be foiuid only in cities and large towns ; — these are ob- 
jects which deserve at least as much attention as the inquiry 
where we can purchase calicoes cheapest, or how great pecu- 
niary sacrifice must be made before we can manufacture rail- 
road iron for ourselves. I see not how these ends can be 
obtained in a comitry like ours, wliich is, so to speak, cursed 



THE SUCCESSION TO PROPERTY. 493 

with great advantages for agriculture, emigration, and the 
segregation of the people from each other, without throwing 
over om* manufacturing industry, at least for half a century to 
come, the broad shield of an effective protecting tariff. We 
shall need this shield only while we are passing through the 
term of om- pvipilage and apprenticeship, which, for a nation, 
of com-se, is always a protracted one; we shall need it, to 
adopt Burke's phrase, only while we are in the gristle, and 
have not yet hardened into the bone, of manhood. When we 
have enjoyed, as England has already enjoyed, the benefit of 
a strict protective policy for over a century, for the purpose of 
completing our education in manufactm-es, then we shall be 
ready to do what England at last has done, — to throw down 
all barriers, and to invite the world to compete with us in the 
application of industry and skill to any enterprise designed to 
satisfy the wants of man. 



^ / 



CHAPTER XXV. 



THE DISTRIBUTION OF PROPERTY AS AFFECTED BY THE LAWS 
REGULATING THE SUCCESSION TO THE ESTATES OF PERSONS 
DECEASED. 

The question respecting the distribution of property, which 
has chiefly been discussed only in the abstract by pohticians 
and Political Economists, has now become one of practical in- 
terest and of the gravest importance. The sacredness of the 
institution has been generally recognized. That the accumu- 
lation of wealth in the hands of individuals was indispensa- 
ble, in order that the aggregate property of the nation might 
increase, and for the maintenance of order, the prevention of 
endless disputes, the encouragement of industry and enterprise, 
and the promotion of aU the higher interests of society, was a 
fact that few were bold enough to deny. The inheritor of an 
estate usually claims it even as a natural right; he seldom 
thinks of defending his possession of it merely on the ground 
42 



494 THE SUCCESSION TO PROPERTY. 

of general expediency. He holds that he is indebted for it, not 
to government, or legislation, or the general consent of the 
community, but to those general principles of morality and 
natural law which protect his person and insure him the free 
use of his faculties and his time. Consequently, he invokes 
the aid of the law, the assistance of society, whenever he is 
molested in the enjoyment of his property. His doctrine is, 
that government did not give it to him, but that government is 
bound to take good care that he be not unjustly deprived of it. 
Yet nothing is more certain than that all inherited property 
is actually enjoyed by the gift of law and the consent of soci- 
ety. A natural right is not limited by the boundaries of 
states ; yet a second son in France claims an equal share of 
his parent's real estate, in the same manner, and for the same 
reason, that the eldest son in England claims the whole. An 
American is entitled to dispose of his whole property by will, 
according to his own judgment or caprice ; he may endow a 
college or a cat with it, if he sees fit, to the total exclusion of 
his natural heirs. But this posthumous privilege, this post' 
mortem enjoyment of wealth, is strictly limited in France ; if a 
testator has one child, he can dispose of but half of his prop- 
erty ; if he has two children, only a third, and if three, only a 
fourth, of his estate is subject to his own will. The respective 
shares of the sons and daughters are accurately determined, 
and a man cannot, even by gift during his lifetime, do any- 
thing to contravene the effect of this law. Now, as most of 
the wealth of a country, in the course of a single generation, 
must descend by inheritance or bequest, and as this descent is 
everywhere regulated by legislation, it follows that inherited 
property is the creature of law ; its distribution is effected by 
government, or by the general consent of society, and is reg- 
ulated by considerations of expediency alone. It sounds 
strange, but it is true, that the same authority which in Eng- 
land upholds the right of primogeniture, and in Scotland 
gives the privilege of perpetual entail, and in France deprives 
a testator of the power of giving away more than a small frac- 
tion of his property by will, might, with equal justice, decree 
that a man's whole estate on his decease should escheat to the 
state, or come under the disposal of the legislature, to be ap- 
plied equally for the benefit of the whole nation. The legisla- 



THE SUCCESSION TO PROPERTY. 495 

tive power does not enact that the whole people shall be equal 
and joint heirs of all property which is vacated by death, simply 
because it believes that it is more for the interest of the whole 
people that the estate should be inherited only by the children 
of the deceased, or should descend exclusively to the oldest son. 
The law which disinherits five children out of one family for the 
benefit of the sixth, is surely competent to deprive the sixth 
also of his inheritance ; if it leaves but one fourth of the 
estate to the caprice of the testator, it may destroy the efficacy 
of wills altogether. 

It is true, that some considerations of justice and natural 
right come in to limit the general authority of law. The projD- 
erty which a man does not inherit, but actually creates by his 
own industry, seems to be his own by a higher and stronger 
title than any which society can confer. But it is no infringe- 
ment of his right to say, that his power over the valuable article 
thus produced by him shall cease at his death ; for the only 
superiority of Ms title consists in the fact that he, the possessor 
of the property, was also its creator, and one who only inherits 
it from its first owner cannot urge this plea ; to defend the ab- 
solute right of the heir, would be to maintain that a right by 
inheritance is equal to one by creation, and thus to destroy the 
original claim of superiority of title. Absolute ownership, 
however sacred for the time, necessarily terminates at the death 
of the individual ; society deprives him of nothing that is his 
own, when it refuses him testamentary power, because nothing 
that belongs to earth can be enjoyed beyond the grave, and he 
who has nothing can be deprived of nothing. 

Again, the rightful authority of the legislature over the de- 
scent of property is limited by the trusts and expectations that 
have been created by immemorial usage and the previously 
existing state of the law. The conduct, the hopes, the calcula- 
tions of men, are regulated by the customs of the country, by 
the assumed sanctity of prescription, and by long established 
institutions. The laws which regulate the descent of property 
are fundamental in their character ; they are classed with the 
first principles of the constitution, like those which determine 
the form of the executive government, whether it shall be re- 
publican, aristocratic, or monarchical ; and, excepting insignifi- 
cant changes of forms and details, they are never altered but 



496 THE SUCCESSION TO PROPERTY. 

on grand emergencies, or after a stormy revolution. A person 
of fortune adapts the education of his children to their presumed 
future enjoyment of his large estates; and although his own 
absolute right to his lands and goods certainly terminates at 
his death, these children suffer flagrant wrong, if their honest 
expectations are deceived, and they are compelled to adopt 
a course of life for which they were not trained. Society is 
under an implied contract with all who are members of it, not 
to make sudden or wanton changes in its own fundamental 
statutes, on whose presumed inviolability great hopes have 
been cherished, and plans devised the execution of which was 
to extend through future generations. Thus, if the French 
law of descent were suddenly introduced into this country, a 
great outcry would be raised, not merely against the policy, 
but the justice, of the measure ; though no one thinks of im- 
pugning the law, as it actually exists in France, on any higher 
ground than that of expediency. The right of regulating the 
descent of property by vdR, of rewarding a favorite child, and 
disinheriting a stubborn or vicious one, has come to be consid- 
ered here as a necessary incident of ownership ; it would be 
urged, that the government might as well rob a man directly 
of his wealth, as deprive him of the power of giving it away 
as he sees fit, whether the gift is to take effect during his life- 
time or after his decease. Yet nothing can be more clear, than 
that a man necessarily abandons his earthly property at the 
grave ; and if any WTong is done in the distribution of it, that 
wrong is not suffered by the deceased, who is beyond the 
sphere of injury from his fellow-man, but by those whom he 
leaves behind. K his nearest of kin have any absolute right to 
it, beyond the limits of prescription and positive statute, in 
preference to all other persons in the community, and to the 
community itself, we have yet to learn on what foundation 
this right is based, and by what civilized nation, or in what 
code of laws, it has ever, to the full extent, been recognized. 
There is an implied contract between society and the individ- 
ual, that he shall be protected in the exclusive enjoyment of 
his earnings, the fruits of his own labor, so long as he is capable 
of enjoying them ; when that capacity ceases, the contract is 
dissolved, the obligations of society have been fulfilled, and 
what is left behind without a natural owner comes into the 



THE SUCCESSION TO PROPERTY. 497 

common stock, to be distributed, or appropriated in mass, solely 
from a regard to the greatest good of the greatest number. 

These considerations are applicable to all inherited property, 
whether real or personal ; but they are most conclusive in the 
case of the ownership of land. Without going into the ques- 
tion respecting the manner in which territory was first par- 
celled out and appropriated to exclusive use, or whether the 
original division took place by express compact, or by silent 
sufferance which gradually became prescriptive right, there is 
no doubt that the land first belonged in common to all men, 
and the appropriation of it by individuals is now admitted to 
be equitable only because it is believed to be expedient. The 
earth was given to be the habitation, and to provide for the 
subsistence, of all men, and it was at first enjoyed in common. 
The ocean and the air are so used even now ; the former is 
the common highway of nations, because its vast extent affords 
room for all ; while the right of navigating straits, narrow seas, 
and inlets into the land, is sometimes limited, under the pre- 
text that one government must have the entire control of them 
in order to prevent interference and disputes, or to provide for 
its own safety, or to repay itself for disbursements required in 
order to make the navigation of them safe for all. These are 
reasons of mutual convenience ; and perfectly similar reasons 
are alleged to justify the division of land, and the appropriation 
of it by individual owners. That appropriation of it in the 
first instance was certainly a usurpation, for it must have taken 
place without the consent, and even without the knowledge, of 
the vast majority of those who, up to that period, had enjoyed 
it in common, each one of whom had consequently as good a 
right to it as he who first fenced it in. If it could be proved 
that this division did not promote the general welfare, or that 
it produced on the whole more harm than good, every person 
might claim either a share of the land, or the privilege of culti- 
vating the whole of it in common with others, as his natural 
birthright. In fact, a portion of the land is always given up 
for general use as a highway, because it is for the common ad- 
vantage that all should have the privilege of passing over it. 
The farms contiguous to the highway could not equitably be 
held as private property, except from a similar regard to the 
common interest. 

• 42* 



498 THE SUCCESSION TO PROPERTY. 

Two considerations, however, must be admitted to modify 
the inferences which might otherwise be drawn from this state- 
ment. The first may be given in the language of Mr. Mill. 
*' If the land derived its productive power wholly from nature," 
he says, " and not at all from industry, or if there were any 
means of discriminating what is derived from each source, it 
not only would not be necessary, but it w^ould be the height of 
injustice, to let the gift of nature be engrossed by a few." But 
this is not the case, for " though land is not the produce of in- 
dustry, most of its valuable qualities are so. Labor is not only 
requisite for using, but almost equally so for fashioning, the 
instrument. Considerable labor is often required at the com- 
mencement, to clear the land for cultivation. In many cases, 
even when cleared, its productiveness is wholly the effect of 
labor and art. The Bedford Level produced little or nothing 
until artificially drained. The bogs of Ireland, until the same 
thing is done to them, can produce little besides fuel. One of 
the barrenest soils in the world, composed of the material of 
the Goodwin Sands, the Pays de Waes in Flanders, has been 
so fertilized by industry, as to have become one of the most 
productive in Europe. Cultivation also requires buildings and 
fences, which are wholly the produce of labor. The fruits of 
this industry cannot be reaped in a short period. The labor 
and outlay are immediate, the benefit is spread over many 
years, perhaps over all future time. A holder will not incur 
this labor and outlay, when his successors, and not himself, 
will be benefited by it. If he undertakes such improvements, 
he must have a long period before him in which to profit by 
them : and he cannot continue always to have a long period 
before him, unless his tenure is perpetual." 

Again, land usually does not long continue in the possession 
of the person, or even of the natural heirs of the person, who 
first appropriated it, or took it out of the common stock. He 
sells it to another, who pays a price for it out of the accumu- 
lated fruits of his previous industry, these fruits being his own 
property by the highest title under which property is ever held. 
Society cannot reclaim the land, then, without stripping the 
present owners of their rights, which they have acquired in the 
most unexceptionable manner. Whatever claim the commu- 
nity may have, is good only against him who first wrongly 



THE SUCCESSION TO PROPERTY, 499 

appropriated what was not his own, and not against one who 
now possesses nothing that he has not fairly paid for out of the 
proceeds of his previous industry and frugality, and who has 
vested his wealth in a purchase of land under the tacit sanc- 
tion of the public, who cannot, at this late day, retrieve the 
consequences of their previous neglect without gross injustice. 

Little reasoning is needed to confute the theory of the Com- 
munists, who propose an equal division of goods as a remedy 
for nearly all the evils with which society is afflicted. They 
are not aware, or do not reflect, that the sight of the two ex- 
tremes of opulence and poverty, — the hope of rising to the one 
and the fear of falling into the other, — is the constant stimu- 
lus which keeps up that energy and activity of the human race, 
through which alone these goods are created. Make men se- 
cure of a provision for aU their wants, take away from them 
all objects of ambition, destroy both anxiety and emulation, — 
and these are the certain results of an enforced equality of 
property and condition, — and after a few years, even if there 
remained anything to be divided among them, (which there 
would not, for their wastefulness under such circumstances 
would equal their indolence,) they would become useless and 
discontented drones, devoured by ennui, or eager for wrangling 
and fighting with each other, as the only means of relieving 
their otherwise stagnant existence. 

But the theorists tell us, that the necessity of laboring for 
the good of the community would be a motive to action, which 
would supply the place of the necessity which every person 
now feels of laboring for himself. We answer, that the com- 
mon adage, "what is everybody's business is nobody's," is 
enough to show the folly of this supposition, which implies 
great ignorance of the dispositions of mankind. The com- 
monest observation proves, that, to make a man industrious, 
you must show him that the fruits of his industry will be 
wholly his own ; if he is to share them equally with a thou- 
sand others, who have not shared the particular effort which 
produced them, he will throw aside his implements of labor in 
disgust, or relinquish them on the first approach of weariness. 
The motive to exertion must be immediate, or it will not be 
sufficiently pungent. It matters not, if you prove to him by a 
demonstration, that his individual welfare is inseparably con- 



500 THE SUCCESSION TO PROPERTY. 

nected with the interests of the whole community. Men do 
not act from such far-sighted calculation as this ; they look 
first to their own interests at the present moment. Practically, 
each one will argue thus : ' I am but a unit in a vast multi- 
tude, and the effect which my idleness or industry at this time 
will have on the general welfare, -will be a quantity too small 
to be appreciated ; and little as the general stock will be dimin- 
ished by my refusal to work, my personal share of that dimi- 
nution or loss, being the quotient after another division among 
the whole multitude, will be an infinitesimal of the second de- 
gree, an atom that I cannot distinguish, — while the effort to 
overcome my present unwillingness to labor will be consider- 
able. I will remain idle, then.' This is very selfish and short- 
sighted reasoning, it is true ; but it needs very little knowledge 
of human nature to convince one, that it is the only way in 
which the bulk of mankind will reason, and very little calcula- 
tion of consequences to see what would be the result, if every 
member of the community should thus think and act. 

Of course, we shall be told that men must be educated, and 
taught to act with more foresight and less selfishness, and from 
considerations of duty and benevolence, instead of blindly fol- 
lowing the impulses of the moment. Certainly, let them be 
educated, and their moral condition be improved, by all means ; 
when they have become universally intelligent, philanthropic, 
and industrious, and are no longer actuated by selfish motives, 
property may well be abolished, and society may exist under 
any form, for the social state cannot then fail to be a happy 
one, however constituted. Meanwhile, as this work of improv- 
ing the character of the whole race will probably be a slow and 
tedious one, and as the new institutions will not be practicable 
till it is completed, it might be well to commence with the op- 
ulent classes alone, who are comparatively few in number, and 
who, when converted and made purely benevolent and unself- 
ish, will need no persuasion, no new framework of society, to 
induce them to share their goods equally with their less fortu- 
nate brethren. Human nature, as it is now constituted, it is 
evident, is not compatible with the maintenance of your new 
institutions ; any such improvement in it as might render it fit 
for their support, would take away the necessity of making 
any change. 



THE SUCCESSION TO PROPERTY. 501 

The general advantages of the institution of property are 
so obvious, that it may be said to exist by general consent. 
Without it, mankind would relapse into barbarism, — nay, into 
the condition of the wild beasts ; for even a tribe of savages 
cannot live together without exclusive ownership of their rude 
tools, arms, clothing, and habitations. No one would submit 
to the labor of tilling the ground, because others would have 
an equal right with him to reap the harvest. No man would 
even erect a hut, if his neighbors could claim possession of it 
as soon as it was completed. Prudence and frugality would 
be impossible virtues ; no provision for the future would be 
made, if those who wasted and spoiled were allowed to enjoy 
that provision as well as those who saved it. No society could 
be organized ; for the only bond of association is the posses- 
sion of certain property and rights, from the enjoyment of 
which those who are not members of the society are excluded. 
Universal want would lead to universal war, and that condi- 
tion of mankind which Hobbes imagined as the inevitable re- 
sult of the evil principles of human nature, when not checked 
by despotism, would become a fearful reality. 

To guard against these tremendous evils, the sacredness of 
property is recognized, government is instituted for its protec- 
tion, and laws are made to facilitate its increase, to regulate 
its use, and to provide for the distribution of it, when the death 
of its producer or former owner leaves it to the disposal of his 
survivors. The rule almost universally adopted in the last case 
is, to distribute it among those who are nearest of kin to the 
deceased, though in very different proportions, according to the 
different policy of the law in different countries. A man's 
nearest relations are commonly said to be his natural heirs, not 
because they have any natural or indefeasible right to his es- 
tates, but because they are nearest to his affections, and, if his 
will were to be consulted, they would generally succeed to the 
ownership. The strongest natural claim to property thus left 
vacant is surely that of the community at large, to whom, if it 
be land, it originally belonged, and under whose protection and 
by whose aid, whether it be real or personal, it was accumu- 
lated. Their claim, in fact, is universally admitted, as they 
assume the power of giving the property away by designating 
the persons who shall inherit it, and the proportions which they 



502 THE SUCCESSION TO PROPERTY. 

shall respectively hold. And there is no doubt that society 
acts wisely in consulting the wishes of the original proprietor, 
by limiting the succession to his own family or his nearest 
connections. Industry and economy are thus promoted, as 
every one is encouraged to labor and to save up to the close of 
his life, since those who are dearest to him are to have the sole 
benefit of his accumulations. If he had only a life interest in 
his estate, if society at large, or individuals who were entire 
strangers to him, were to be his heirs, his exertions would be 
limited to the attainment of a fortune barely sufficient to sup- 
ply his own wants. He would spend both income and princi- 
pal, and be reckless of the future, so that he had enough left 
for the necessities of his own declining years. Family ties, 
also, would be weakened or destroyed by a law giving the in- 
heritance to strangers ; children would have less motive to rev- 
erence their parents, who could not labor to promote the wel- 
fare of their offspring, except for the brief remaining period of 
their own existence ; and as the admirable constitution of our 
moral nature is such, that we always love those most upon 
whom we have conferred the greatest benefits, parental affec- 
tion under these circumstances would be very sensibly dimin- 
ished. Besides, such a law could be executed only very 
imperfectly. Invention, stimulated by affection, would be 
constantly on the rack to evade it, by fraudulent transfers and 
sales effected dviring the lifetime of the first owners ; and the 
attempt to prevent such practices would lead to intolerable in- 
quisition into private and domestic concerns, and to endless 
fitigation. 

It is from the wisest reasons, therefore, from the most judi- 
cious regard to the general welfare, that the law gives the 
property of a person deceased intestate to the nearest of kin. 
Still, there is room for a wide discretion in determining the 
principles on which the estate shall be divided among those 
who stand in the same degree of relationship to the first pro- 
prietor. Shall any regard be paid to the wishes of the de- 
ceased in this respect ? Shall aU share alike ? Or what pref- 
erence shall be shown to the sons over the daughters, or to the 
first-born over his brothers and sisters ? These are grave ques- 
tions, and on the answers to them, more, we had almost said, 
than on all other causes united, the form of government and 



THE SUCCESSION TO PROPERTY. 503 

the welfare of the people, the whole political and social frame- 
work of society, in every country, must ultimately depend. 
Notwithstanding their immense importance, these questions 
have not, till of late years, been much discussed either by leg- 
islators or political economists. " I am surprised," says M. 
De Tocqueville, "that ancient and modern jurists have not 
attributed a greater importance to the laws of inheritance. It 
is true, they belong to civil affairs ; but they ought, neverthe- 
less, to be placed at the head of all political institutions ; for, 
while political laws are only the symbols of a nation's condi- 
tion, those which determine the descent of property exercise 
an extraordinary influence over its social state. They operate 
in a uniform and certain manner. Man acquires through their 
means a kind of preternatural power over the destiny of un- 
born generations. When the legislator has established the 
laws of succession, he may rest from his labors. The machine 
is a self-acting one, and when once put in motion, it will ad- 
vance steadily, as of its own accord, towards the previously 
appointed end. Adjusted in one manner, it brings together, 
concentrates, and heaps up property first, and power after- 
wards, in the hands of a few ; it causes an aristocracy, so to 
speak, to spring out of the grouud. Adjusted on different 
principles, and turned another way, its action is still more rap- 
id ; it now breaks up, pulverizes, and disseminates wealth and 
power. It crushes or shatters every obstacle that is found in 
its path ; it rises and falls upon the ground with repeated blows, 
till there is no longer anything to be seen but an impalpable 
and moving dust on which democracy is seated." 

And long before De Tocqueville, in an address delivered at 
Plymouth in 1820, Mr. Webster said : " A republican form of 
government rests, not more on political constitutions, than on 
those laws which regulate the descent and transmission of 
property. Governments like ours could not have been main- 
tained where property was holden according to the principles 
of the feudal system ; nor, on the other hand, could the feudal 
constitution possibly exist with us. Our New England ances- 
tors brought hither no great capitals from Europe ; they were 
themselves, either from their original condition, or from the 
necessity of their common interest, nearly on a general level in 
respect to property. Their situation demanded a parcelling out 



504 



THE SUCCESSION TO PROPERTY. 



and division of the lands ; and it may be fairly said, that this 
necessary act fixed the future frame and form of their govern- 
ment. The character of their political institutions was deter- 
mined by the fundamental laws respecting property. The 
laws rendered estates divisible among sons and daughters. 
The right of primogeniture, at first limited and curtailed, was 
afterwards abolished. The property was all freehold. The 
entailment of estates, long trusts, and the other processes for 
fettering and tying up inheritances, were not applicable to the 
condition of society, and seldom made use of. On the con- 
trary, alienation of the land was every way faciUtated, even to 
the subjecting of it to every species of debt. The establish- 
ment of public registries, and the simplicity of our forms of 
conveyance, have greatly facilitated the change of real estate 
from one proprietor to another. The consequence of all these 
causes has been, a great subdivision of the soil, and a great 
equality of condition ; the true basis, most certainly, of a popu- 
lar government. 

" A most interesting experiment of the ejEFect of a subdivis- 
ion of property on government is now making in France. 
The law regulating the transmission of property in that coun- 
try now divides it, real and personal, among all the children 
equally, both sons and daughters ; and there is, also, a very 
great restraint on the power of making dispositions of prop- 
erty by will. It has been supposed, that the effect of this 
might probably be, in time, to break up the soil into such 
small subdivisions, that the proprietors would be too poor to 
resist the encroachments of executive power. I think far oth- 
erwise. What is lost in individual wealth will be more than 
gained in numbers, in intelligence, and in a sympathy of senti- 
ment. I would, presumptuously perhaps, hazard a conjecture, 
that if the government do not change the law, the law, in half 
a century, will change the government ; and this change will 
not be in favor of the power of the crown, as some European 
writers have supposed, but against it." * 

In just ten years, this remarkable prediction was fulfilled 
by the revolution of 1830 ; and in less than twenty years more, 
by the still more democratic revolution of 1848. 

* Webster's Works, Vol. I. pp. 35 - 37. I have condensed the extract. 



THE SUCCESSION TO PROPERTY. 505 

That the extremes of opulence and destitution should exist 
side by side, a few revelling in the enjoyment of immense for- 
tunes, whUe millions around them are suffering from the want 
of all the comforts, and even of the necessaries, of life, is the 
great reproach of modern civilization. Men have acquiesced 
in the evil only because they believed it to be irreparable. 
Any attempt to remove the inequality of property was sup- 
posed to threaten the security of the institution itself, and thus 
to lead immediately to the dissolution of society and govern- 
ment, and to the destruction of all the higher interests of the 
human family. The subject would not bear to be tampered 
with ; the sensibility of the community upon this point is fe- 
verish in the extreme. To excite their fears, to shake their 
confidence in the permanency of the institution as it exists, is 
enough to break the springs of industiy and enterprise at once, 
and to cause nearly as much mischief as a complete social rev- 
olution. Changes in the laws affecting the distribution of 
wealth, therefore, are seldom proposed, except in the course of 
some great political convulsion, when the foundations of soci- 
ety are broken up, and the whole fabric is to be placed on a 
new basis, and erected anew. 

Sudden changes, then, are out of the question ; they would 
only enhance, or render universal, the evils which we seek to 
remedy. The only inquiry is, whether causes may not be set 
to work which will tend slowly but irresistibly to the equaliza- 
tion of wealth, without exciting alarm, or affecting the present 
enjoyment of property, or injuring any vested rights, or lessen- 
ing to any appreciable extent the motives for accumulation. 
If the diffusion of capital, the division of estates, and the con- 
sequent approach to equality of condition, when thus gradu- 
ally effected, should act with resistless force upon the institu- 
tions of the state, and change the nature of the government, 
we need not deplore the result. In these modern days, politi- 
cal influence gravitates towards property, as in former ages it 
was always united with military strength. Riches are but an- 
other name for power, either in a republic, a monarchy, or a 
despotism ; and as the possession of them, when fairly earned, 
not inherited, is usually coupled with sobriety, prudence, in- 
dustry, and good sense, and, above all, with a distrust of inno- 
vation and a love of order, it is well that they should have the 
43 



506 



THE SUCCESSION TO PROPERTY. 



command or the leading influence in the state. A due regard 
for equality of rights, then, only requires that wealth should be 
open to the attainment of all, that it should never be made in- 
alienable or indivisible by its present holder, never be locked 
up by legal proceedings which bind future generations, but be 
left to circulate freely as air, and to find its natm'al level, as 
water does, by diffusion in broad seas and oceans. The acqui- 
sition of it will thus be a natural test of character, ability, and 
intelligence, and political power can nowhere be more safely 
lodged than in the hands of its possessors. In a country where 
no one is poor except by his own fault, where misery is not as 
necessarily inherited by one class as immense wealth is by an- 
other, where pauperism never exists except as a consequence 
of folly, indolence, or crime, the holders of property may justly 
claim the exclusive control of the state. They will not need 
to have this power expressly given to them by laws and con- 
stitutions ; it will naturally and inevitably fall into their pos- 
session, — so much of it, at least, as they shall deem necessary 
for their own security and happiness. 

Admitting these general principles, then, that property ought 
to be made inviolable, that it sliould descend only to the fam- 
ily or kindred of the deceased, and be distributed among them 
from a regard, not to their private interests, but to the welfare 
of the whole community, (though these two ends in the long 
run will be identical,) we come to inquire into the policy of 
the different laws by which, in different countries, this distribu- 
tion is effected. We take it for granted, that great inequality 
of wealth in any country is a great national evil, to be avoided 
or lessened by the use of all just means which arc consistent 
with the security of property itself. If such inequality be per- 
mitted to continue or increase, except from inevitable necessity, 
the conduct of the legislators who foster or permit it becomes 
criminal in the cxti'cme ; upon their heads are justly charge- 
able the privation and wretchedness, the moral and intellectual 
degradation, the famines and plagues, which it brings upon 
millions of their fellow-beings. 

The only systems of law regulating the succession to prop- 
erty which need here be considered are those which obtain re- 
spectively in England, in the United States, and in France ; 
and the social condition of the people in these three countries 



THE SUCCESSION TO PROPERTY. 507 

may be taken as a guide to the effects of these laws, and of the 
customs and institutions which are encouraged or created by 
them, and with which they are necessarily connected. The 
general policy of the law is sure to direct the inclinations and 
habits of the people, so that the law is justly chargeable with 
the effects, not only of what it directly enjoins, but of what it 
permits, exemplifies, and fosters. 

Thus, in England, the right of primogeniture applies only 
to the real property of intestates ; but the effect of the example 
and sanction of the law is, to induce even those who make 
wills to devise the larger share of all the property, and very 
often the whole of the real estate, to the oldest son. Entails 
are allowed during the lifetime of any number of persons actu- 
ally in being, and till the first unborn heir shall be twenty-one 
years old ; * and further, any heir of entail may grant leases 
which will be good against the future owners of the estate for 
three lives. Numerous, other impediments are created to the 
sale or division of real estates, and the people are thus encour- 
aged to carry out the policy of the law by settlements, trust 
processes, and other legal devices ; so that, at any one time, 
the real property of the kingdom is as safely tied up and 
guarded against the extravagance or wilfulness of the actual 
possessor, as if perpetual entail were permitted there, as it was 
till recently in Scotland. It is estimated, that more than one 
half of all the real estate in the latter country was thus pro- 
tected for ever against division or alienation from particular 
families. In France, on the other hand, where the law requires 
the larger portion of the property to be distributed equally, the 
people readily acquiesce in the principle, and very seldom ex- 
ercise their power of increasing the share of a favorite child by 
the small portion which they are allowed to give according to 
their own judgment or fancy ; if we may judge from the Paris 
returns, not more than one person out of seven makes a wiU at 
all, and but one in eighteen of these testators gives the reserved 
portion to one of his legal heirs, so as to lessen the number of 

* "An English gentleman," says McCulloch, "may entail an estate on any heir, 
or series of heirs, during the longest life of certain parties named or clearly specified 
in the deed, and alive when it was made, and till twenty-one years after the death 
of the last surviving nominee. It is immaterial whether the parties taken as nomi- 
nees be parties on whom the estate may or may not devolve." 



508 THE SUCCESSION TO PROPERTY. 

parts into which the estate is divided, the others preferring to 
bestow it upon strangers. In both countries, then, the consent 
of the people carries out the general policy of the law, favoring 
or preventing the distribution of property, just as the legisla- 
ture determines in those cases which are settled by the law 
alone, without regard to the wishes of the owners. 

Here in America, the law takes the middle course between 
the English and the French policy. The custom of gavelkind 
is the rule, unequal distribution is the exception. Entails are 
generally more restricted than in England, perpetual entails 
being never allowed ; and all minor restrictions on the division 
or sale of landed estates being taken away, the partition or 
transfer of real property is effected about as easily as that of 
movables. On the other hand, the law does not oblige a par- 
ent to distribute his property equally, but he may make what 
distinctions he chooses, and may virtually disinherit all his 
children, if he sees fit. But the custom follows the law ; many 
persons do not make a will, but allow the law to take its 
course. A testator seldom makes a very unequal distribution 
among his children ; but if he is childless, he often disposes of 
his property according to fancy, the expectations of more dis- 
tant heks not being much regarded. 

From the operation of these laws in the tluee countries, we 
might naturally expect that there would be monstrous inequal- 
ities in the distribution of wealth in England, wliile in France 
and this countiy, property would be as nearly at a level in the 
commmiity as it can be brought by the influence of legislation. 
It is true, that the several systems must have time to operate 
before their full effects can be perceived. The French system 
did not come into full effect till the revolution of 1789 ; it was 
one, and the most effective of all, of the sweeping measures 
adopted at that epoch for the sole purpose of breaking the 
power of the feudal aristocracy. Only two generations having 
elapsed since that time, it might be supposed that the splitting 
of landed estates and the general subdivision of property have 
not yet been carried out there to their fuU extent, but that the 
equalization of wealth is destined to go much farther. 

This may be doubted ; here in New England, where the 
law of equal partition, applied directly only to the property of 
intestates, but governing in fact the descent of nearly aU prop- 



THE SUCCESSION TO PROPERTY. 509 

erty, has been in force for more than two centuries, the land is 
by no means so much subdivided as in France ; and we have 
probably more persons of large fortune, in proportion to the 
whole population, than can be found in any department of that 
country. If the farm is already so small that it will not sup- 
port more than one family with the average degree of comfort 
among landholders of the same class, one of the heu's will buy 
out the others, who will use the price of their shares as means 
for establishing themselves in some non-agricultural employ- 
ment, or in some other locality. In truth, it is demonstrable 
that there must be this limit to the division of estates ; for if 
the ground owned and cultivated by a small proprietor be in- 
sufficient for the support of his family, his poverty will oblige 
him to sell it, and the purchaser, of course, must be a person 
more wealthy than himself. It is idle, then, to talk of the risk 
of the whole country falling into the hands of a set of pauper 
proprietors ; the first symptoms of pauperism will oblige them 
to alienate their lands, and capitalists wiU reunite the farms 
which had been injured by excessive subdivision. The ability 
to purchase can never be wanting, as all the natural causes of 
inequality of wealth operate without check during each com- 
plete generation ; for during this period, they are not counter- 
acted by laws regulating the succession to property. "We can, 
therefore, readily admit the conclusion which has been drawn 
from statistical evidence,* that the smaller properties in France 
have not sensibly diminished in size during the last thirty 
years. Possibly these small estates may increase in number 
through the breaking up of larger ones ; but they will not be 

* M. Legoyt, in an article published in the "Dictionary of Political Economy," in 
1854, says that he has examined the state of the case for 122 cantons belonging to 
twenty-seven departments, taken indifferently from the north, south, east, west, 
and centre of France, and has established the following results. Forty-eight cantons, 
belonging to eleven different departments, were divided, in 1815, into 2,754,885 es- 
tates or separate properties ; and in 1847, they had only 2,438,062 such estates, being 
a diminution of thirteen per cent in thirty-two years. In the seventy-four other 
cantons, belonging to sixteen departments, there were 2,846,971 separate proper- 
ties in 1815, and in 1847 there were 3,096,235, being an increase of less than nine 
per cent in thirty -two years. Taking the aggregate for the 122 cantons, which com- 
prise nearly a third part of all France, it appears that there were 5,601,856 estates in 
1815, and only 5,534,297 in 1847, being a diminution of over one per cent. It is 
very evident, then, that the morcellement or subdivision of landed property in France 
has reached its limit, and has probably begun to decline. 

43* 



510 THE SUCCESSION TO PROPERTY. 

more contracted in dimension, for, if smaller, they would not 
support a single family. 

Among the ancients, as a general rule, all property, on the 
death of the owner, descended as a matter of course to his 
children, or, if he had none, to his nearest relatives. In Athens, 
Solon confined the privilege of making a will to such as had 
no children ; before his time, the estate was necessarily divided 
among the nearest of kin. In Rome, for a long period, chil- 
dren could be disinherited only by a will made in an assembly 
of the people, so that the act was not so much that of an indi- 
vidual as of the legislature. In the later ages of the Empire, 
the law required all the children of the testator to be named in 
the will, and if any one of them was disinherited, that special 
reasons should be given for such treatment. And the heir thus 
excluded might bring an action to test the vahdity of these 
reasons ; if they were found insuflSicient, the will was set aside, 
and the disinherited child was admitted with the others to 
what the law termed their "legitimate portion " of the paternal 
estate. Before the Code and the Pandects were compiled, 
this portion amounted to one fourth of the whole. Justinian 
decreed, that, if there were not more than four children, they 
should succeed as of right to a third part of the property ; if 
more than four, they received at least one half. Among the 
Germans, also, as we are informed by Tacitus, the children 
were protected in their natural heirship, and the right to devise 
property away from them was not allowed. Hence it appears 
that the French law of compulsory partition is no innovation ; 
the voice of antiquity generally is in its favor, as consonant 
with reason and the natural sense of equity. 

The right of primogeniture, and the privilege of entailing es- 
tates, or devising them to a series of heirs, any one of whom 
has only a life-interest in the property, without the power of 
alienating it or burdening it with debt, had their origin in the 
feudal system. Before the rise of feudalism, it is true, males 
were in some instances preferred to females, and the eldest son 
had some advantages over his brethren ; thus, according to the 
Jewish law, he had a double share, a pecuharity which was 
borrowed from the Mosaic code for a short time by the first 
settlers of New England. In Anglo-Saxon times, even in Old 
England, all the property, whether real or personal, was divided 



THE SUCCESSION TO PROPERTY. 511 

equally among the sons, if there were any ; if not, among the 
daughters. " The green network of hedges spread over the 
face of England, that peculiar charm of English land," is attrib- 
uted by Mr. Laing to this circumstance ; it could have been 
formed only by a nation of smaU proprietors, among whom the 
land was partitioned oiF by these enclosures into fields of very 
moderate extent. In Scotland, France, and Germany, where 
the feudal system gave the original law of real property, these 
small enclosures do not exist ; the face of the country is not 
marked by permanent lines of division, but expands in broad 
and unenclosed districts. In England, even down to the time 
of Henry II., personal property or movables were divided into 
three equal portions, one of which went of right to the widow, 
another to the lineal descendants, and the direction of the third 
only was left to the will of the testator ; if there were no chil- 
dren, the widow took one half, and the other half might be dis- 
posed of by testament. 

But generally, at the time of the Norman conquest, the prin- 
ciples of the feudal system were introduced into the kingdom, 
and an entire change was made in the rules which determined 
the succession to the estates of persons deceased. The system 
which was then established in England, though it has under- 
gone some changes of form, has continued, on the whole, with 
fewer alterations on essential points than in any other country 
in Europe. It was eminently favorable to the nobles and the 
gentry, and its continuance has kept up the power and real in- 
fluence of the aristocracy in Great Britain, while almost every- 
where else, especially during the present century, it has rapidly 
declined. The aggregation of real property into immense 
landed estates,' and a very unequal distribution of movable 
goods, have been the economical results of this preservation of 
the principles of the feudal system relating to the succession, 
after every other trace of that system had disappeared. Eng- 
land is now as much an aristocratic country, is as much under 
the dominion of her great barons, as it was in the days of 
Warwick, "the King-maker"; only the power of the nobles 
now rests, not on their arms, but on their wealth. In France 
and most other kingdoms on the Continent, the triangular con- 
test between the people, the nobles, and the sovereign termi- 
nated in a partial union of the people and the crown, which 



512 THE SUCCESSION TO PROPERTY. 

made the latter practically absolute, and enabled it either to 
crush the aristocracy, or to render it entirely subservient to the 
throne. But in England, the barons and the gentry wisely 
espoused the popular cause, and took the lead in wresting from 
the crown the Great Charter, the Statute of Treasons, the Pe- 
tition and the Bill of Rights, and the other time-honored muni- 
ments of English freedom. Thus they have been more than 
a match for the crown, and have never entirely lost the sup- 
port of the people. They have never become unpopular as a 
class, but have preserved their vast estates and their social 
weight and influence along with them. Thek political privi- 
leges have been from time to time abridged ; but their " weight 
in the country," to adopt a phrase which is peculiarly English, 
is now as great as ever. The aristocracy of France, on the 
other hand, is extinct, that of Spain is effete, that of Germany 
and Italy hardly exists except in name. Its influence in these 
countries has not been great enough to preserve the laws by 
which alone great landed estates could be kept together and 
preserved through successive generations ; and without such 
estates, political power is an accident, and titles are an idle dis- 
tinction. In fact, titles have usually multiplied as the power 
of the nobles has declined. 

Feudal estates were held, for the most part, on condition of 
rendering military service, and therefore could not pass into the 
possession of females, except when the male line was extinct. 
There were obvious inconveniences, also, in the partition of 
such estates ; for in military arithmetic, the sum of all the 
parts is not equal to the whole. A great baron, who could 
bring a thousand armed retainers to the wars, was a match for 
at least twenty of the inferior nobles, each of whom could not 
muster more than a hundred followers. " The security of a 
landed estate," says Adam Smith, "the protection which its 
owner could afford to those who dwelt on it, depended on its 
greatness. To divide it was to ruin it, and to expose every 
part of it to be oppressed and swallowed up by the incursions 
of its neighbors. The law of primogeniture, therefore, came 
to take place, not immediately indeed, but in process of time, 
in the succession of landed estates, for the same reason that it 
has generally taken place in that of monarchies, though not 
always at their first institution. That the power, and conse- 



THE SUCCESSION TO PROPERTY. 



513 



quently the security, of the monarchy may not be weakened by 
division, it must descend entire to one of the children. To 
which of them so important a preference shall be given, must 
be determined by some general rule, founded, not upon the 
doubtful distinctions of personal merit, but upon some plain 
and evident difference which can admit of no dispute. Among 
the children of the same family, there can be no indisputable 
difference but that of sex and that of age. The male sex is 
universally preferred to the female, and when all other things 
are equal, the elder everywhere takes the place of the younger. 
Hence the origin of the right of primogeniture, and of what is 
called lineal succession." Fortunately for the English nobil- 
ity, also, the law of England, unlike that of most kingdoms on 
the Continent, caused the title as well as the property to de- 
scend only to the oldest son ; the younger children were mere 
commoners, and therefore did not make hereditary honors 
cheap by multiplying them, or uniting them with poverty. 
The younger branches of the family found their own impor- 
tance enhanced by ministering to the greatness of the head of 
their house. If they acquired wealth and reputation for them- 
selves, they buttressed the strength of the main trunk in their 
family pedigree ; if they were poor and weak, they were lost 
in the crowd, and cast no shade on the splendor of the house 
whence they originated. 

But it is not enough to satisfy the pride and ambition of the 
nobles, that the estate should be kept together, and in the pos- 
session of one person. Means must be devised also to prevent 
it from being alienated, or passing out of the family alto- 
gether. The eldest son might be a sot, a spendthrift, or a 
simpleton, from whose witless grasp the broad paternal acres 
might slip into the hands of parasites, gamblers, and creditors. 
To obviate such a misfortune, the property was entailed on a 
succession of heirs, no one of whom had a right to spend more 
than its annual income, or to burden it with debt. Besides, 
attainder for treason or felony might cause a forfeitm-e of the 
estate to the crown ; but if the present possessor held only a 
life-interest in it under an entail, the property would pass at 
his death, in spite of the attainder, to the next heir, whose 
rights could not be impaired by the criminality of a previous 
life-holder, any more than by that of a steward or a tenant. 



514 THE SUCCESSION TO PROPERTY. 

The property was not his, either to be forfeited or to be alien- 
ated by sale or debt. Of course, it was for the interest of the 
crown to prevent entails, but of the nobles and other great 
landholders to multiply them, and to render them strict and 
perpetual. Under Edward I., when the power of the barons 
was nearly at its height, they succeeded in passing the statute 
entitled De donis conditionalibus, which established a system 
of perpetual entail, each successive heir receiving the land only 
nnder condition, as the lawyers say, of not alienating it, but of 
ti'ansmitting it unimpaired to his successor. Such laws, as 
Adam Smith remarks, " are founded upon the most absurd of 
all suppositions, — the supposition that every successive gen- 
eration of men have not an equal right to the earth and to all 
that it possesses ; but that the property of the present genera- 
tion should be resti-ained and regulated according to the fancy 
of those who died, perhaps, five hundred years ago." But the 
statute of Edward's parliament remained in force for over two 
centuries, which was more than enough to manifest its inj uri- 
ous results. " The inconvenience thereof was great," says 
Lord Bacon ; " for by that means, the land being so sure tied 
upon the heir as that his father could not put it from him, it 
made the son to be disobedient, negligent, and wasteful ; often 
marrying without the father's consent, and to grow insolent in 
vice, knowing that there could be no check of disinheriting 
him. It also made the owners of the land less fearful to com- 
mit murders, felonies, ti'easons, and manslaughters ; for that 
they knew none of these acts could hurt the hen- of his inherit- 
ance. It hindered men that had entailed lands, that they 
could not make the best of their lands by fine and improve- 
ment, for that none, upon so uncertain an estate as for term of 
his own Hfe, would give him a fine of any value, nor lay any 
great stock upon the land, that might yield rent improved. 
Lastly, those entails did defraud the crown and many subjects 
of their debts ; for that the land was not liable longer than his 
own lifetime; which caused that the king could not safely 
commit any office of account to such whose lands were en- 
tailed, nor other men trust them with loan of money." 

These inconveniences, and the decline of the power of the 
nobles under the Tudors, enabled those arbiti-ary monarchs to 
do away practically with the law of perpetual entail ; though 



THE SUCCESSION TO PROPERTY. 515 

not repealed by the legislature, it was nullified by a contriv- 
ance of the lawyers and the courts, which enabled the party 
in possession, by a fictitious suit, to bar the entail, and part 
with the estate by an ordinary conveyance. This method of 
destroying perpetuities has been simplified and extended by 
acts of Parliament during the last quarter of a century, so as 
to establish the law of entail on its present footing, the owner 
of real estate being allowed, as already mentioned, only to tie 
it up during any number of lives already in being, and for 
twenty-one years after. In Scotland, however, the nobUity 
and gentry having suffered much from forfeiture during the 
seventeenth century, a law was passed in 1685, authorizing 
landholders to entail their estates in perpetuity ; and five years 
after^vards, another statute expressly exempted entailed es- 
tates from confiscation, on the ground that every man ought 
to " suflfer for his own fault, and not the innocent with or for 
the guilty." Under these acts, more than half of all Scotland 
was fettered by strict entaU for ever ; * and though the mani- 
fest evils of such restraint caused the statesmen and lawyers of 
the kingdom to make several vigorous efforts to change the 
law, the land-owners successfully resisted them till a few years 
ago, when Parliament passed an act which carried into Scot- 
land all the important features of the English system of en- 
tail. 

As political power and social influence in England have al- 
ways followed the ownership of real estate, all the contrivan- 
ces of legal ingenuity have been brought into play to prevent 
the division or alienation of landed property, and to preserve 



* But the Scotch mode of regulating the distribution of personal property offers a 
strange contrast with this custom of tying up the real estate. " The law of Scot- 
land," says McCulloch, " in regard to the devising of movables, is at present nearly 
identical with the old law of England. In the former, if a father die leaving a wid- 
ow and children, whether of the last or any former marriage, the children succeed 
to a third part of his movable property as legitim (from the legitima pars of the Ko- 
mans), and the widow to another third part. If there be no widow, or if she have 
renounced by her marriage contract the jus relictce, the legitim of the children 
amounts to half the personal estate. And it is further to be observed, that the right 
of the children to claim their legitim cannot be defeated by testament ; though it 
may be defeated by the father converting his movable into fixed property, and by 
his executing a de presenti conveyance of his whole movable estate to others." 

This is very nearly the French law of compulsory partition, though applied only 
to personal property. 



516 THE SUCCESSION TO PROPERTY. 

the nominal ownership in the family, even after the substance 
has been dissipated, or the estate so heavily burdened with 
mortgages and other encumbrances that the ostensible proprie- 
tor can derive little or no income from it. Since the right of 
primogeniture takes effect only in case of intestacy, so that it 
can be defeated by making a will, and as an entail is vahd 
only for a limited period, it would seem that the property must 
be frequently liable to pass out of the family. It is possible to 
make entails effectual for a century or more ; but McCuUoch 
says, " this is not often done, and fifty or sixty years may, per- 
haps, be assumed as their usual average duration." But the 
aristocratic feeling prevails so generally through successive 
generations, that no sooner is one deed of entail discharged, 
than it is renewed by the parties interested in the estate ; and 
thus, with the aid of marriage settlements, trust deeds, and 
other similar devices, nearly all the landed property in Eng- 
land, at any one moment, is as effectually tied up as if it were 
subjected to perpetual entail. 

Mr. Byles, an English sergeant-at-law, remarks, " estates are 
kept in families, not by the law of entail, but by the power 
which exists of creating life-estates." When a land-owner 
marries, he wishes to make provision for his wife and the issue 
of the marriage after his death ; and to do so, he makes over 
his estate to the children of the marriage successively, reserv- 
ing only a life-interest in the property for himself; in legal 
phrase, " he becomes tenant for life, his son tenant in remain- 
der. As soon as the eldest son comes of age, he can make 
way with his interest, just as his father could before him ; or 
father and son may join, and sometimes do join, in alienating 
the estate altogether. But in practice, the more usual course 
is this : the son is about to marry, and is advised, or chooses, 
to settle a hfe-estate on himself, and to provide, after his death, 
for his wife and the issue of the marriage. He resettles the 
estate " ; that is, he takes it out of the market again, by tying 
it up against division or alienation for another generation. 
" And so, in fact, estates are kept together and resettled every 
generation, by the voluntary act, or, if you please, the family 
pride, of their owners, and not by the law of entail. Indeed, 
personal property may be settled by means of life-estates as 
effectually as landed property, and the fund may be, and often 



THE SUCCESSION TO PROPERTY. 517 

is, tied up just as long ; although such a thing as an estate tail 
■Lin personal property never existed at any period of our law." 
H In one respect, indeed, this mode of keeping the property 
together and preventing it from going out of the family by a 
■ perpetual series of marriage settlements, trust-deeds, entails, 
and other legal devices, is more injurious in its consequences 
than the mode of tying it up once for all, and for ever, by a 
perpetual entail. In the latter case, unless power is granted 
by a special statute for the purpose, there is no power of bur- 
dening or encumbering the estate by mortgages, rent-charges, 
rights of dower, settlement of annuities, long leases at low rents 
purchased by a heavy payment outright at the commencement 
of the lease, and other modes of consuming the income in ad- 
vance, while the estate is nominally intact. "When the heir 
under a perpetual entail comes into possession, he finds that, 
though he cannot divide or sell the estate, or make any provis- 
ion from it for his widow or unportioned children, he has, at 
least, the whole income of it undiminished for his lifetime. He 
does not find himself in the mortifying and embarrassed condi- 
tion, of nominally owning an estate of .£10,000 a year, with 
an establishment of corresponding splendor and magnitude to 
be kept up, while his actual income does not exceed one or 
two thousand pounds. But this is too frequently his case, if 
the estate, instead of being under perpetual entail, has been 
settled and resettled again and again ; if one set of fetters upon 
it has been removed every generation or two, only to make 
room for another. For at each period of renewal or settlement, 
there have been debts to be secured, wives to be dowered, 
daughters and younger sons to be provided for, and loans to 
be obtained on mortgage in order to erect buildings or effect 
other improvements. Family pride prevents these charges 
from being met in the natural manner, by selling a portion of 
the estate ; the whole number of acres must be retained, but 
under an encumbrance which annually subtracts a fixed sum 
from the income. At each successive period, as a general rule, 
the number and amount of these encumbrances are increased, 
till they at last absorb the greater part of the income. " Nor is 
even this all," says Mr. Byles ; " men like to round their estates. 
They buy up and engross the little neighboring properties, and 
charge the whole estate with money to pay for the new pur- 
44 



518 THE SUCCESSION TO PROPERTY, 

chase. Thus the complication of settlements and charges em- 
braces and corrupts even the sound parts, like the hideous roots 
of a cancer." * In respect to one's worldly prospects, the 
greatest misfortune wliich can happen to a man in Great Brit- 
ain is, to be born heir to a large and heavily burdened estate. 

A strict system of perpetual entail opposes an almost insur- 
mountable barrier to making improvements upon the land, 
since each holder of a life-interest in the estate is unwilling to 
expend any portion of the income upon it, because the benefi- 
cial consequences of such expenditure will be reaped chiefly 
by his successors. Leaseholders for short terms, also, cannot 
be expected to make permanent improvements, the advantages 
of which will be chiefly experienced by the owners of the prop- 
erty, and by those who may come after them under subsequent 
leases, with whom they have no tie of a common interest, af- 
fection, or kindred. These evils of the Scotch system being 
great and notorious, Parliament applied a partial remedy, first 
in 1770, and again in 1824. The former act authorized the 
life-holder, in spite of any prohibition in the deed of entail, to 
grant leases for ninety-nine years of small patches of ground, 
not exceeding five acres, for the purpose of building ; it also 
empowered him to burden the estate to the amount of six years' 
rent, for agricultural improvements and the erection of a man- 
sion-house, provided that he contributed out of his own income 
towards these objects one fourth as much as was charged upon 
the estate. The act of 1824 made a stiU greater innovation ; 
it aUowed the possessor, notwithstanding any prohibition in 
the deed, to make provision out of the estate for his widow 
and younger children ; and the limit of the encumbrances thus 
authorized, under both acts, was fixed at two thirds of the net 
annual income. Thus, as McCulloch remarks, " the income 
of the heir in possession of an entailed estate may be reduced 
to a third part of its net rental ; and out of this portion, he has 
to keep up the mansion-house, and to defray the whole expense 

• Few readers can have forgotten the saddest story in all literary biography, — that 
of Sir Walter Scott virtually killing himself by over-exertion, and reducing the finest 
genius since Shakespeare's day to idiocy, in the vain attempt to pay off vast encum- 
brances on the large landed estate which he had imprudently collected, in the hope 
of "founding a family" that could hold its place for all time among the landed gen- 
try of Scotland. And that family, though he left four children, two of whom were 
sons, — where is it ■? 



THE SUCCESSION TO PROPERTY. 519 

of managing the estate, including the losses incurred by the 
failure of tenants, and such like contingencies. Hence it fol- 
lows, that the free disposable income of an heir of entail in pos- 
session of an estate of £ 12,000 a year may not, and sometimes 
does not, exceed <£1,500 or X 2,000 a year." No wonder, 
then, that Parliament came at last to believe, that a system of 
perpetual entail leading to such consequences was not worth 
keeping up, and abrogated it by the law of 1848, which permit- 
ted all perpetuities to be broken, and assimilated the Scotch to 
the English system of entail. 

Two peculiar circumstances tended to increase the burdens 
upon real estate in Ireland. Far the larger portion of the 
island had been confiscated since the reign of Henry VIII., 
and the crown had granted immense estates out of the forfeited 
lands to courtiers, military officers, and noblemen, who pre- 
ferred to live in England, and to let their property on long 
leases to others, who assumed all the care of management. In 
Great Britain, property can be leased only for a limited period 
of years ; but in Ireland, it has been the custom to grant a lease 
for a certain number of lives, with a covenant for perpetual re- 
newal, on the payment of a moderate fine on the fall of each 
life. Thus the lands are virtually leased in perpetuity, and the 
amount so leased, says Mr. Pim, " is very great, perhaps as 
much as one half of Ireland." This is not all ; the first lease- 
holder on a perpetuity again lets out the land to others, who in 
their turn underlet it in smaller portions, an increased rent be- 
ing charged at each remove. These intermediate landlords, 
or " middlemen " as they are termed, and perpetual leases, are 
two peculiar encumbrances upon Irish estates, in addition to 
the marriage settlements, mortgages, heavy annuities, and fam- 
ily charges, with which they are as heavily burdened as Eng- 
lish or Scotch property. 

The impoverishment of the land, the decline in value of real 
estate, the distress of the landlord, and the misery of the ten- 
antry, are the inevitable results of this condition of things. 
The present landlord has no interest in its improvement, except 
so far as he may wish to benefit the heir at law who is to suc- 
ceed him. If, as is generally the case, he has daughters and 
younger sons to provide for, whatever savings he can make 
from income he will not expend upon the land, but wiU invest 



520 THE SUCCESSION TO PROPERTY. 

in other forms, where they will be subject to his control by will. 
Thus the fences and buildings are allowed to decay, drainage 
is neglected, the ground is scourged with exhausting crops, and 
the tenants in possession are oppressed with the heaviest pos- 
sible rents, the object being to obtain the utmost present gain 
from the estate, at whatever injury to the future value. Mr. 
Pirn describes a " by no means uncommon case," in which the 
heir comes into possession of a deeply encumbered estate, when 
already " burdened with debts of his own, contracted on the 
faith of his inheritance, and borrowed on terms of usurious in- 
terest proportionate to the risk incurred. In what difficulties is 
he at once involved, this owner for life of a large tract of coun- 
try, with a long rent-roll, but in fact a small property ! He 
cannot maintain his position in society without spending more 
than his income ; debts accumulate ; he borrows on the credit 
of his life-interest, and insures his life for the security of the 
lender. He lets to the highest bidder, without regard to char- 
acter or means of payment. His object is immediate income, 
not the future value of the property. If the tenants are with- 
out leases, he raises their rents. If leases fall in, he cannot af- 
ford to give the preference to the last occupier." He cannot sell 
a part of the property, though the proceeds of such sale might 
greatly improve the value of the remainder. " Perhaps, with 
all his exertion, he is unable to pay the interest, or put off his 
creditors. Proceedings are commenced against him, and the 
estate passes, during his lifetime, under the care of the worst 
possible landlord, — a receiver under the Court of Chancery." 
" In very many cases," says a respectable witness, " where en- 
cumbered estates have fallen under the management of law 
courts, the district has usually rather resembled one which has 
been plundered by an enemy, than one under an enlightened 
government, in a country long exempt from the calamities of 
war." 

These evils having become intolerable, Parliament at last 
applied a remedy, in 1848, by creating by statute the commis- 
sion for the sale of encumbered estates in Ireland. Under this 
act, an encumbered estate, by consent of the owner, or on ap- 
plication of the mortgagees or other creditors, might be at once 
released from all burdens by the high authority of Parliament, 
and sold to the highest bidder, with an indefeasible title good 



THE SUCCESSION TO PROPERTY. 521 

against all the world. The proceeds of the sale are paid into 
the Court of Chancery, to be distributed by that court, as 
equity may require, between the owner, his creditors, the va- 
rious encumbrancers, the heirs at law, and all other interested 
parties. Thus the process was an easy and simple one ; the 
legal burdens were all taken off the land, and applied only to 
the money which was received from the sale of it, the estate 
itself being sold to the greatest possible advantage, because 
free from all encumbrance, resting upon the best of all titles, a 
parliamentary one, and being divided into such portions as 
would best suit the convenience of the purchasers. Before this 
act was passed, the mortgages and other burdens covering the 
whole property equally, and even rendering, through their com- 
plication, the title to it very doubtful, it was impossible to sell 
a portion of the property ; it could only be disposed of as a 
whole, and with a title so uncertain, and law expenses so 
heavy, that it would bring but a small part of its real value. 

The proceedings under this statute afford curious evidence 
of the extent to which real property in Ireland had become en- 
cumbered. Up to October, 1854, upwards of two millions of 
acres had changed hands under the authority of this commis- 
sion ; it had sold 1,152 estates to 5,613 purchasers, for 
£ 13,509,303. Of these estates, 364 had been in Chancery 
over five years, 167 over ten years, 17 over thirty-five years, 
and 9 over fifty years. In about five years, more than one 
tenth of all the landed property in the island had passed 
through the hands of this commission. How much more is 
to undergo the same process, it is impossible to teU ; but the 
proceedings have been delayed, in order to avoid crowding so 
much land upon the market at once as to depress the price. 
One of the most significant facts that appear from these re- 
turns is, that the land sold has been divided into about five 
times as many distinct estates as before. The amount of the 
encumbrances was such, that only a small portion of the pro- 
ceeds of the sale of the property remained for the benefit of its 
former nominal owners. 

I have entered into this detailed account of the state of 

landed property in Great Britain and Ireland, as aifected by 

the tenure of land and by the laws regulating the succession 

to the estates of persons deceased, because it seems to me to 

44* 



522 THE SUCCESSION TO PROPERTY. 

afford almost a complete explanation of those striking peculi- 
arities in the social and economical condition of the people of 
that country, by which they are distinguished from all other 
nations, and which have suggested those theories in political 
economy that affect the whole aspect of the science as it is 
taught by the English authorities upon the subject. Such the- 
ories as those of Malthus upon population, Ricardo upon rent 
and profits, Adam Smith upon free trade, and McCulloch upon 
this very matter of the succession to property, must have origi- 
nated from experience in an anomalous state of society, from 
observation of the laws of wealth as exemplified in their opera- 
tion under very peculiar circumstances. Any refutation of 
them would be insufficient which did not point out the phe- 
nomena by which they were suggested, and offer some expla- 
nation of these phenomena which should be consistent with 
general principles and facts of universal experience. 

The avowed objects of the English laws which regulate the 
descent of property are, the concentration of wealth in the 
hands of a few, and the support of an hereditary territorial aris- 
tocracy. These ends have been obtained. The inequality in 
the distribution of wealth in England is greater than in any 
other civilized nation ; and her nobility and gentry are wealth- 
ier, more intelligent, more highly cultivated, more influential, 
and more secure in the possession of their power and property, 
than the corresponding classes now existing, or that ever have 
existed, in any country in the world. Five noblemen, the 
Marquis of Breadalbane, the Dukes of Argyle, Athol, Suther- 
land, and Buccleuch, own perhaps one fourth of all Scotland.* 
I have already quoted the assertion of M. de Lavergne, that 
2,000 proprietors possess among them one third of the land 

* The estate of the Duke of Sutherland comprises about 700,000 acres, or consid- 
erably more than 1,000 square miles. The domains of the Marquis of Breadal- 
bane, says M. de Lavergne, " extend one hundred English miles, or forty leagues, 
in length, and reach nearly from sea to sea." Both of these immense estates have 
been cleared of their ancient inhabitants, and the Highland clans by which they 
were not only occupied, but owned, have ceased, properly speaking, to exist; they 
have been driven into exile, or have been exterminated by privation and hardships. 
A few remnants of them inhabit some miserable fishing hamlets on the sea-shore, 
and swell the bulk of the destitute classes in the great cities. " By far the wealth- 
iest proprietor in the Lowlands is the Duke of Buccleuch," whose estates extend 
over several counties, and whose palace at Dalkeith is an establishment of regal 
magnifioence. 



THE SUCCESSION TO PROPERTY. 523 

and total revenue of the three kingdoms of England, Scotland, 
and Ireland. It is admitted that, up to 1848, there were not 
more than 5,000 Scotch, and 8,000 Irish land-owners ; and 
good reasons have been adduced (page 195) for the opinion, 
that there are only 46,000 who should be classed as landed 
proprietors in England. About 60,000 families, then, own all 
the territory which is occupied by over 27 millions of inhabit- 
ants. 

In France, on the other hand, under the laws requiring the 
equal partition of the property of persons deceased, the aristoc- 
racy have virtually ceased to exist, and out of a population of 
about thirty-five millions, at least five and a half millions are 
landholders. Considering these as heads of families, and al- 
lowing on an average four persons to a family, we find that 
twenty-two millions, or nearly two thirds of the whole popula- 
tion, are owners of the soil. Making the same allowance for 
the families of British landholders, we have but 240,000 indi- 
viduals, or about the 112th part of the people, who share 
among them, the total rental of the United Kingdom, which 
amounts to more than sixty millions sterling. In France, it is 
estimated that there are two and a half millions of proprietors 
whose estates do not exceed an average of ten acres each, and 
three millions of others whose properties average about thirty 
acres. 

These results of a comparison of the two countries in re- 
spect to the distribution of landed property are very startling, 
and would almost exceed belief, if it were not evident that the 
policy of the law so strongly favors aggregation in the one 
case, and partition in the other, that such consequences, sooner 
or later, are inevitable. A race of husbandmen living on then- 
own small properties, and constituting what was called the 
yeomanry of the land, were formerly the principal cultivators 
in England and Wales. The larger portion of the population 
were then engaged in tilling the ground, which then produced 
more than enough for the national consumption, and there 
were no complaints that the country was over-peopled. But 
the race of small proprietors is now extinct ; large estates and 
large farms have absorbed the small ones, and the agricultur- 
ists, who were once two thirds, now form but one fifth, of the 
whole population. The doctrine of the dominant school of 



524 THE SUCCESSION TO PROPERTY. 

English economists is, that farming must be carried on like 
every other trade ; that large farms, like large machine-shops, 
large cotton-mills, and large iron-works, can produce cheaper 
than small ones, and therefore, very properly, supersede and 
obliterate them. Whatever may be thought of the correctness 
of this doctrine, it has certainly been carried out in practice. 
According to the census of 1851, there are in Great Britain, 
1,132 farms containing each 1,000 acres and upwards, and 
2,816 others which are over 600 acres in extent. There are 
but 190,573 farms of less than 100 acres each, while in France, 
as we have just seen, there are two and a half millions which 
do not exceed ten acres. 

The chief argument in favor of this " monster-farm " system 
is, that it economizes labor, and admits the application of cap- 
ital on a large scale, so that machinery can take the place of 
human beings, great operations in draining and manuring can 
be effected, and the most improved processes of agriculture can 
be carried out in their fuU perfection. It may be so, if by rent 
we understand only that portion of the produce which accrues 
to the exclusive benefit of the landlord. In many cases, his 
estate will give him a larger income if devoted to pasturage 
than to tillage ; for in the former case, only a few herdsmen 
are required to perform all the labor that is needed on a thou- 
sand acres. But it does not produce so much food ; it does 
not afford sustenance to so many people. He who turns his 
land into a sheep-pasture or a deer-park, acts on the same prin- 
ciple as the Dutch, when, having a monopoly of the trade in 
spices, they destroyed a portion of what they imported in or- 
der to enhance the price of the remainder. It behooves the 
landholders who reason in this manner to ask themselves, if 
they do not lose as much by the increased cost of pauperism 
as they may possibly gain by the enhancement of their rents. 
In England alone, the amount levied for the poor rate in 
1850 exceeded seven and a quarter millions sterling (about 
$ 36,000,000) ; the average number of paupers receiving relief 
on any one day was almost exactly one million ; and the 
whole number of different persons relieved during some part of 
the year, was three miUions.* 

* Pashley on Pauperism and the Poor Laws, (London, 1852,) pp. 8- 12. 



THE SUCCESSION TO PROPERTY. 525 

The proper object of all cultivation is to increase the quan- 
tity of the marketable produce of the land, and this is what the 
interest of the community, especially in such a country as Eng- 
land, requires ; the object of the land-owner who does not till 
the ground himself, but lets it out to others, is to reserve as 
much as possible of this produce for himself. He may often 
obtain a greater net return by diminishing the gross amount 
of produce. If fifty laborers upon his estate, for instance, will 
enable him to send 1,000 bushels of grain to market, the price 
of 800 bushels being needed to pay the wages of these laborers ; 
while ten laborers will produce 500 bushels for sale, and require 
only 160 bushels for wages ; his rent in the former case will 
be only 200, while in the latter it will amount to 340 bushels. 
It is for his interest, then, to employ the smaller number of 
laborers, and thereby to produce the smaller quantity of food, 
especially since the inadequate supply in the market will then 
enhance the price of the grain. It may be, that 500 will sell 
for as much as could, under the other supposition, be obtained 
for 1,000 bushels. But it is certainly not for the interest of the 
public, in a country teeming with population and deficient in 
the supply of food, that he should adopt this course. Here is 
another instance, then, of the fallacy of the often quoted 
maxim, that individual and national interests are identical. 
Only half a century ago, the most profitable use which the 
farmers of Ohio and Western Pennsylvania could make of 
their grain was to distil it into whiskey ; for in this highly con- 
centrated form alone w^ould it bear the expense of transporta- 
tion to the eastward. The interests of the individual here 
prompted him to deprive the grain of its nutritious properties 
and convert it into a poison ; the interests of the public required 
a very different proceeding. 

That a larger g-ross product of food may be obtained from 
the land when it is divided into small properties than when it 
is held in large farms, is a fact which no English traveller on 
the Continent can think of disputing, " In Flanders," says 
Mr. Laing, •' the face of the country resembles a carpet, little 
patches of gound being covered with a great variety of crops 
of different shades and hues, not separated from each other by 
enclosures, and all blooming like a garden from the care and 
skill of the cultivator. Not a bit of ground is allowed to run 



526 THE SUCCESSION TO PROPERTY. 

to waste, every nook and corner, every patch in the angle of a 
fence, being searched by the spade and hoe, and weeded by 
hand." The wonders of EngUsh farming are accomplished on 
a large scale, with high finish indeed, but with much neces- 
sary neglect or slighting of the nooks and corners, which can- 
not be tilled by machinery, but will yield retm-ns only to man- 
ual labor. Spade-husbandry, of course, is less profitable, and 
even less productive, than husbandry by the plough, wherever 
land is cheap and labor is dear. But where only the nobility 
and gentry own the land, while a large portion of the people 
are constantly in want of employment and food, precisely the 
reverse holds ; cultivation by the spade is then true economy, 
and husbandry on a large scale is criminal wastefulness of the 
bounties of Providence. The utmost amount which land is 
capable of producing can be estimated only on the small 
patches of ground, in the neighborhood of a large city, which 
are cultivated by the market gardeners. Here, every clod is 
broken, every shovelful of earth is raked and sifted, every peb- 
ble and weed is carefully removed by hand, and an abundance 
of hoarded manure being applied, while every accident of rain 
or sunshine is economized or averted, the crops are immense 
out of all proportion with the little space that is cultivated. 
Usually two or three crops of different kinds of vegetables are 
raised from the same land in one season. If the cultivator is 
also the owner of the soil, he works with a degree of diligence, 
earnestness, and care which can never be obtained from a hire- 
ling. The land is then, to adopt Mr. Laing's happy illustra- 
tion, his Savings' Bank, in which he invests the labor of what 
would otherwise be his spare minutes ; for though such labor 
may not perceptibly increase the amount of the next crop, it 
will add to the value of the ground. Even the little household 
refuse, which would otherwise be wasted, though really valua- 
ble as manure, is economized and applied to the land. The 
common description of a farm which is worked to the utmost 
is, that it is cultivated " like a garden" ; and what is a garden 
but a small farm ? A whole country divided into small prop- 
erties is a constant succession of such gardens. In England, 
the large farmer, who often pays a rent of a thousand pounds 
a year, is in fact a commercial speculator on a grand scale. 
He cannot afford to pay much attention to minutiae ; a too 



THE SUCCESSION TO PROPERTY. 527 

jealous and closely calculated economy, by leading him to fritter 
away on details the care and thought which are required for 
the general management, might ruin him. There is always 
considerable waste in large enterprises ; it wUl not do for the 
manager of them to cultivate corners and patches. The large 
farmer wields a heavy capital with great skill and science, 
economizes human labor by the introduction of costly and 
powerful machines, and may either make or lose a fortune in 
one season. His operations are of a sweeping character, and 
his returns are counted in the gross. He often makes more 
money by raising a smaller amount to the acre. To turn all 
his land into a Idtchen garden would require a whole army of 
laborers, whose wages would eat up all his profits. The la- 
borers would be fed, but he would sacrifice his capital. The 
method which he pursues has an opposite effect ; he makes large 
profits, while the laborers are driven off the estate, and too often 
become dependent on public charity. Large farms economize 
human labor, it is true ; but it depends on circumstances 
whether this is a benefit to the nation. Here in the United 
States, indeed, it would be a real saving, equivalent to the pro- 
duction of more wealth ; but it is difficult to see what advan- 
tage it could bring to a country like England, where, in 1850, 
there were over 300,000 able-bodied male paupers.* 

But this question respecting the comparative advantages of 
large and small farms can be best determined by observing the 
results of the two systems in actual operation, side by side. 
The following is taken from Mr. Laing's " Notes of a Trav- 
eller," First Series. 

" Why should the physical and moral condition of this pop- 
ulation [that of Tuscany] be so superior to that of the Neapol- 
itans, or of the neighboring people in the Papal States ? The 
soil and climate and productions are the same in all these 
countries. The difference must be accounted for by the hap- 
pier distribution of the land in Tuscany. In 1836, Tuscany 
contained 1,436,785 inhabitants, and 130,190 landed estates. 
Deducting 7,901 estates belonging to towns, churches, or other 
corporate bodies, we have 122,289 belonging to the people, — 
or, in other words, 48 famifies in every 100 have land of their 

* Pashley on Pauperism and Poor Laws, p, 19. 



528 THE SUCCESSION TO PROPERTY. 

own to live from. Can the striking difference in the physical 
and moral condition, and in the standard of living, between 
the people of Tuscany and those of the Papal States be as- 
cribed to any other cause ? The taxes are as heavy in Tus- 
cany as in the dominions of the Pope ; about 12s. 6d. sterling 
per head of the population in the one, and 12s. lOd. in the other. 
But in the whole Maremma of Rome, of about 80 leagues in 
length by 10 or 12 in breath, M. Chateauvieux reckons only 24 
factors, or tenants of the large estates of the Roman nobles. 
From the frontier of the Neapolitan to that of the Tuscan 
state, the whole country is reckoned to be divided into about 
600 landed estates. Compare the husbandry of Tuscany, the 
perfect system of drainage, for instance, in the strath of Arno, 
by drains between every two beds of land, all connected with 
a main di-ain, — being our own lately introduced fm-row tile- 
draining, but connected here with the irrigation as well as the 
draining of the land ; — compare the clean state of the growing 
crops, the variety and succession of green crops for foddering 
cattle in the house all the year round, the attention to collect- 
ing manure, the garden-like cultivation of the whole face of 
the country ; — compare these with the desert waste of the Ro- 
man Maremma, or with the Papal country, of soil and pro- 
ductiveness as good as that of the vale of the Arno, the country 
about Fohgno and Perugia ; — compare the well-clothed, busy 
people, the smart country-gnls at work about their cows' food, 
or their silkworm leaves, with the ragged, sallow, indolent pop- 
ulation lounging about their doors in the Papal dominions, 
starving, and with nothing to do on the great estates ; nay, 
compare the agricultm-al industry and operations in this land 
of small farms with the best of our large farm-districts, with 
Tweedside, or East Lothian, — and snap your fingers at the 
wisdom of our Sir Johns, and all the host of our book-makers 
on agriculture, who bleat after each other that solemn saw of 
the thriving-tenantry-times of the war, — that small farms are 
incompatible with a high and perfect state of cultivation. Scot- 
land, or England, can produce no one tract of land to be com- 
pared to this strath of the Arno, not to say for productiveness, 
because that depends upon soil and climate, which we have not 
of similar quality to compare, but for industry and intelligence 
applied to husbandry, for perfect drainage, for irrigation, for 



THE SUCCESSION TO PROPERTY. 529 

garden-like culture, for clean state of crops, for absence of all 
waste of land, labor, or manure, for good cultivation, in short, 
and the good condition of the laboring cultivator. These are 
points which admit of being compared between one farm and 
another, in the most distinct soils and climates. Our system 
of large farms will gain nothing in such a comparison with the 
husbandry of Tuscany, Flanders, or Switzerland, under a sys- 
tem of small farms." 

In the isle of Guernsey, where the agricultural population is 
twice as dense as in England, the average wheat crop is at 
least 32 bushels to an acre ; wliile the average English crop — 
with all the advantages arising from the application of immense 
capital, scientific husbandry, and agricultm-al machines, on 
which the advocates of large farms lay so much stress — is but 
21 bushels. An English cultivator, with his family, it is esti- 
mated, consumes one fifth of the product which he raises ; 
then, if there were three cultivators where there is now but 
one, and if their united exertions should make the crop only 
two fifths greater than it was before, there would still be as 
great a sm-plus to send to market, though the number of fam- 
ilies supported upon the land would be three times as great. 
Li other words, as one cultivator raises 100 bushels, of which 
he is able to sell 80, so, if three cultivators can produce 140 
bushels from the same land, they can still send 80 to market, 
and feed themselves and their families with the remainder. 
This is the case in Guernsey, where the average crop exceeds 
the average English crop by more than two fifths. 

Large estates still more than large farms diminish the aggre- 
gate product of the country, because the owners of them devote 
so much land to purposes of mere ornament, ostentation, and 
luxury. When the territory is divided among small proprie- 
tors, as in France, Prussia, and the Netherlands, almost every 
acre of it is employed productively ; it is all given to tillage, 
pasturage, gardening, or the growth of fuel and timber. But 
in Great Britain, large portions are reserved for parks, lawns, 
the chase, and preserving game. If land were abundant and 
cheap, indeed, there would be no reason to regret that many 
acres should be appropriated to such uses. But when com- 
plaints are made that the country is over-peopled, that popula- 
tion tends to outrun the means of subsistence, and that its 
45 



530 THE SUCCESSION TO PROPERTY. 

increase drives down agriculture successively to poorer and 
poorer soils, it is reasonable to inquire whether the gifts of 
Providence are improved to the utmost, or whether the scarcity 
of food be not owing to the luxury and wastefulness of the 
rich. Among other results of that systematic compulsory de- 
population of the Highlands of Scotland wiiieh has been repeat- 
edly mentioned, M. de Lavergne alludes to the " skilful turning 
to account of the wilderness, through the extraordinary profit 
derived from its game. Ptarmigan, blackcock, all kinds of 
water-fowl, and especially grouse, breed upon these moors in 
great plenty ; fallow and red deer have also been artificially 
propagated upon them. Fashion has given great value to these 
sports. A hill stocked with game lets for £ 50 for the season. 
Shooting-lodges, built in the most retked spots, are let, includ- 
ing the right of shooting over the adjacent hills, at £ 500. 
What is called a forest — that is to say, several thousands of 
acres, not exactly planted with trees, but reserved for deer to 
the exclusion of all kinds of cattle — brings an extravagant 
rent. The large Scotch proprietors, following the example of 
William the Conqueror, have laid out many of these forests 
upon their estates. Gentlemen go there at great expense, to 
enjoy the sport of shooting the fleet monarchs of these wilds in 
their precipitous retreats." 

The parallel here suggested is a very significant one. Wil- 
liam, in the stern exercise of his rights as a conqueror, resolved 
to make a new forest near Winchester, the usual place of his 
residence, that he might enjoy the pleasm-es of the chase ; and 
for this purpose, says Hume, " he laid waste the country in 
Hampshu'e for an extent of thirty miles, expelled the inhabit- 
ants from their houses, seized their property, even demolished 
churches and convents, and made the sufferers no compensation 
for the injury." What he did under the rights of war, these 
Scottish lords have done under color of the rights of property. 
They have banished the inhabitants of several counties in the 
North of Scotland, from the homes which, according to the 
Celtic law and usage, belonged to them as much as to their 
chieftains, and have turned one portion of the district into a 
sheep-walk, and another into a wilderness, that they might 
enjoy the pleasures of the chase. The region thus depopulated 
is fifty times as large as that which the Norman converted into 
the New Forest. 



THE SUCCESSION TO PROPERTY. 531 

M. de Lavergne apologizes, though rather faintly, for this 
proceeding. "People are beginning to murmur," he says, 
" against these last vestiges of ancient feudalism, contending 
that the deer are too few in number profitably to occupy the 
vast tracts set apart for them, and that it would be better to 
use them for feeding sheep. I can understand such an argu- 
ment when the question concerns England, where certain 
wealthy proprietors still persist in keeping waste for their 
shootings large tracts of land in the middle of populous dis- 
tricts, that might otherwise bear crops ; such, for example, is 
Cannoch Chase in Staffordshire, which contains nearly 15,000 
acres ; but in the Highlands of Scotland, I can scarcely believe 
that the loss is very great. A few thousands of sheep, more 
or less, would be no great addition to the national food ; and 
then, again, the last remains of savage nature in Great Britain 
would be gone. To rob the country life of all its poetry, is 
going rather too far even in the interests of farming." 

If the question were only between deer and sheep, as the 
inhabitants of this vast district, we might agree with M. de 
Lavergne, that it does not matter much which way it is de- 
cided, especially if we are to take his account of the condition 
of Sutherlandshire, whence a Highland clan has been driven to 
make room for flocks. " The depopulated lands," he says, 
" were divided into twenty-nine large sheep farms, averaging 
twenty-five thousand acres each. The hills serve for summer 
pasturage, and the glens or valleys for the winter. As for hu- 
man inhabitants, there are none. If the sound of the bagpipe 
is heard among the rocks, it is no longer the gathering-call of 
warlike mountaineers, but the more peaceful amusement of a 
shepherd, who, in place of war and pillage, devotes his time to 
the care of sheep, and receives wages from a neighboring 
farmer. This is all that remains of an extinct race. One of 
these shepherds can look after five hundred sheep. There may 
be four or five hundred such upon these eight hundred thou- 
sand acres." In order to effect this improvement, " three thou- 
sand families were forced to quit the country of their fathers, 
and were transplanted into the new villages upon the coast. 
When resistance was shown, the agents of the Marchioness 
demolished their miserable habitations, and in some instances, 
in order to effect this more speedily, the huts were set on fire." 



532 THE SUCCESSION TO PROPERTY. 

These strildng instances of the arbitrary depopulation of 
large districts are not adduced to throw odium upon the au- 
thors of them. The fault is not imputable so much to the 
great proprietors in England, Scotland, and Ireland, who have 
effected these wholesale " clearances " of their estates, as to the 
system, — the policy of the law, the course of legislation, and 
the state of public opinion, — which has caused such an accu- 
mulation of real property in the hands of a few, and has au- 
thorized such a use of it. These are the necessary results of a 
system which is upheld by English theologians and political 
economists, as well as by English statesmen, for the avowed 
purpose of sustaining a splendid aristocracy. " It is not true," 
declares Dr. Chalmers with his wonted earnestness, " that, in 
virtue of elegance, and luxury, and leisure being the inheritance 
of a few, there is not a blessing in the present system of things to 
the whole mass of society. Under the opposite system, there 
would be nearly one unbroken level, the whole of which be- 
hoved, in time, to be as sunk and degraded as is the state of 
our present laborers. Now, it is a level rising into frequent 
eminences of greater or less height [a very remarkable level, 
indeed], and of radiance more or less conspicuous. And what 
we affirm is, that, from this higher galaxy of rank and fortune, 
there are the droppings, as it luere, of a bland and benignant in- 
fluence on the general platform of humanity .^^ 

May Heaven shield every other nation from the droppings 
of such " a bland and benignant influence " as have rendered 
the Highlands of Scotland, and the dreariest hills and bogs in 
the sister isle, more w^ild and desolate even than Nature's hand 
had left them, because the blackened walls of many a roofless 
hut now tell us that man once lived there, but that he has been 
dispossessed and exiled in order to make room for the ptarmi- 
gan, the red deer, and the fox, and thus to afford new hunting- 
grounds for a magnificent aristocracy ! 

The system has been carried out, not merely by such princely 
proprietors as the Duchess of Sutherland and the Marquis of 
Breadalbane, and the great absentee landlords of Ireland, but 
by nearly all the owners of real estate in the United Kingdom. 
There has ]:)een a systematic depopulation of all the rural dis- 
tricts, as the necessary consequence of the national policy of 
favoring the aggregation of landed property for political pur- 



THE SUCCESSION TO PROPERTY. 533 

poses, or to keep up aristocratic institutions. Large estates 
are naturally divided into large farms, both because it is easier 
and safer for the owners thus to manage them and collect their 
rents, and because the aggregate of rent thus obtained is more 
considerable, though this increase of net income is procured by- 
diminishing the gross product. 

The fact that most Irish estates, till within a few years, were 
parcelled out into a great number of very small holdings, is 
only an apparent contradiction of this statement. Irish land- 
lords, as well as English and Scotch, did in fact lease their 
property in a few immense farms ; but the practice of underlet- 
ting being sanctioned by law and custom in Ireland, while it 
is entirely prohibited in the sister isle, the lease-holders found 
it more convenient, as well as more profitable, to let out the 
land again in smaller parcels, and thus to become " middle- 
men" instead of farmers. They thus retained a higher social 
position, and were able to make greater profits by rack-renting 
the inferior tenantry, than by carrying out the most scientific 
processes of husbandry. The absenteeism of the landlords, 
and the practice of granting perpetual leases, favored this re- 
sult. The middlemen under these circumstances differed but 
little from actual proprietors, though they held the estate under 
a heavy encumbrance, and were therefore more extortionate in 
demanding heavy rents, and rigidly exacting aU their dues. 
Few of the kindly relations existed between them and their 
tenantry which generally sprang up in England between a res- 
ident landlord and a tenant family, which, in many instances, 
had occupied the same farm for several successive generations. 
The land, and all that was connected with it, were not endeared 
to the lease-holder by the indefinable charm which springs from 
absolute ownership ; he was, after all, only a great speculator, 
and, in one sense, a hireling. Hence one of the peculiar ag- 
gravating causes of the wretched condition of Irish property, 
and the destitution of Irish tenants. 

Abundant evidence has now been adduced, that the larger 
net income accruing to the landlords from leasing their estates 
in large rather than in small farms, arises from diminishing the 
quantity, and enhancing the price, of the products of the soU, 
instead of increasing its productiveness by improved processes 
of husbandry. Here, surely, the gains of the individual are a 
45* 



534 THE SUCCESSION TO PROPERTY. 

loss to the nation ; such gains are the result of the acquisition 
of wealth, not of its creation, for they are extorted from the 
consumers by raising the price of food. The Scotch Highland 
lords, who also have immense estates in England, would not 
so readily convert their property at the North into sheep-walks 
and game-preserves, if they did not find that, by raising more 
grain, they lowered its price so much that their aggregate re- 
ceipts would be diminished. In truth, it may be demonstrated 
that it is for the interest of English landlords always to keep 
the home supply a little short of the demand, so that some im- 
portation of food shall be necessary. Suppose, for instance, 
that the consumption exceeds one million of quarters by only 
40,000 bushels, and that, if this additional 40,000 bushels are 
raised at home, the price averages fifty shillings a quarter. 
But if 0)ily one million of quarters should be grown in Eng- 
land, then, before the 40,000 bushels can be imported, the price 
of the whole must rise enough to defray the cost of importa- 
tion, which amounts, on an average, to at least twelve shil- 
lings a quarter. By keeping the supply thus far short, there- 
fore, they will be able to sell one million of quarters at sixty- 
two shillings, which will produce £ 3,100,000 ; whereas, if the 
extra quantity be produced at home, they will have 1,005,000 
quarters to dispose of at only fifty shillings a quarter, which 
will amount to but <£ 2,512,500 ; so that the farmers will lose 
<£ 587,500 by their imprudent increase of production. 

This is not all. Large estates and large farms impoverish 
the country, not only by enhancing the cost of food, but by 
lowering the rate of wages, and increasing the number of those 
who are solely dependent upon wages for their support. I 
have already shown, in the chapter on this subject (pp. 199- 
201), that wages are higher in the United States than any- 
where else, chiefly because almost every native American has 
the option of beginning life on his own account, as a small 
tradesman, an independent mechanic, or a small landholder, 
and that he can be tempted to forego the superior indepen- 
dence and respectability of such an occupation, and the greater 
chance that it offers of making a fortune, only by the offer of 
comparatively high wages. Any considerable reduction of the 
rate of wages is sure to be followed by a great diminution in 
the number of those who are willing to work for hire. Mr. 



THE SUCCESSION TO PROPERTY. 535 

Laing happily illustrates the same principle, while accounting 
for the higher real wages that are paid in many parts of the 
Continent than in England. " It is the possession of prop- 
erty," he says, " that regulates the standard of living in a coun- 
try, and this standard regulates the wages of labor. People 
who have at home some kind of property to apply their labor 
to, will not sell their labor for wages that do not afford them a 
better diet than potatoes and maize ; although, in saving for 
themselves, they may live very much on potatoes and maize. 
It is want of the necessity or inclination to take work, that 
makes labor scarce, and, considering the price of provisions, 
dear, in many parts of the Continent where property in land is 
widely diffused among the people." 

Now the whole civilized world affords no parallel to the 
condition of the people of Great Britain in these respects. 
The concentration of landed property, as we have seen, is such, 
that only one person out of every 112 has any proprietary in- 
terest in the soil ; and the large-farm system, with the conse- 
quent reduction in numbers of the agricultural class, has been 
carried so far, that only one in five has anything to do with the 
'cultivation of it. Thus the whole ground of independence of 
the laboring classes has been taken away ; they have been 
obliged to offer themselves as laborers for hire, or to starve. 
While two thirds of the whole French population are owners 
of land, full two thirds of the whole British people are hire- 
lings, solely dependent upon wages for a livelihood.* The 

* Mr. Morrison, one of the latest English writers on the " Relations between La- 
bor and Capital," and a very candid and judicious reasoner, understates the contrast 
when he says, that, in France, "the class of manual laborers living on wages re- 
ceived from capitalists is seen to be only a minority, and not even a large minority, 
of the nation " ; they certainly do not form more than one sixth of the whole. " But 
in England and Scotland," he says, "the classes living by wages form the majority 
of the population," and, according to the best estimate that can be formed from the 
last census, a very considerable majority. 

Mr. Morrison states one of the consequences of this contrast very fairly, when he 
Bays, in reference to the mad proceedings of the Provisional Government in France, 
in 1848, which had raised an alarm about the safety of property, "the great mass of 
the nation, the peasant proprietors and others, who were neither payers nor receivers 
of wages, and had a great and direct interest in the preservation of the right of prop- 
erty, intervened before the mischief had gone very far." But in England, he adds, 
" not only is the division of the nation into a minority of possessors of property, and 
a majority of workingmen having little or no property, more complete than in 
France or most Continental countries, but both the wealth and the labor are col- 



536 THE SUCCESSION TO PROPERTY. 

field for the employment of labor is not unbounded ; its limits 
are as fixed as those of the field for the use of capital. Ac- 
cording to the natural distribution of industry, agriculture 
ought to be the occupation or the chief resource of a majority 
of the people. The production of food is the first and greatest 
want of the human race ; as it must be carried on over the 
whole face of the country, it does not admit of the division 
and the economy of labor so much as the other two depart- 
ments of industry. Every square mile, every acre, must be 
cultivated by itself, wholly irrespective of the work which is 
done upon the neighboring mile or acre. Improvements in the 
processes of husbandry may enable us to raise more products 
from the land, but cannot materially lessen the number of tillers 
of the ground, or the proportion ^vhich they bear to the other 
classes of society, without diminishing at the same time the 
gToss produce. The facts here are in accordance with the the- 
ory. In the whole civilized world, except Great Britain, there 
is not probably one country which employs less than half of its 
population in cultivating the soil ; the usual proportion is from 
two thirds to three fourths. The improvements in manufac- 
ture and commerce have been proportionably so much greater 
than in agriculture, that one third of the people can supply the 
aggregate Avant of the nation in the two former respects, more 
easily than two thirds can supply its want of food. 

In the extrusion of four fifths of the English people from the 
pursuits of agriculture, and from any connection with the soil, 
we find the cause of so large a class of the population being 
entirely dependent upon wages, of the consequent depression 
of wages, the extraordinary increase of pauperism, the unnatu- 
ral development of manufacturing enterprise, and the other 
peculiar circumstances of the present social condition of Great 
Britain. In this single fact, we find a sufficient explanation of 
those social phenomena which first suggested the theories of 
Malthus and Ricardo respecting poptilation, wages, and rent. 



lected iato great masses in a greater degree than elsewhere. Hence, if the improve- 
ment of the relations between capital and labor by the authority of government 
should ever become a practical political question, it will assume dimensions un- 
known in most other countries. It will be a direct appeal to the interests and pas- 
sions of the majority of the whole nation against a minority ; and there will be no 
third party capable of holding the balance between them." 



THE SUCCESSION TO PROPERTY. 537 

Deprived of all other means of support, a majority of the pop- 
ulation are driven to compete with each other for employment, 
by offering to work for the smallest amount of wages that will 
furnish the necessaries of life. Hopeless of any improvement 
in their condition, they become recldess as to the futm-e, and 
too often burden themselves with families when their gains are 
hardly sufficient to preserve their individual existence. Manu- 
factures were the only branch of industry in which any great 
numbers of them could find employment ; and thus labor was 
rendered so cheap, that manufacturing enterprise has been un- 
duly stimulated, and the persons concerned in it have offered 
no opposition to the proceedings of the landholders, whereby 
the towns have been glutted with the surplus of the agricultu- 
ral population. Great Britain is in the anomalous position of 
not raising food enough for her own consumption, and still 
glutting the market of the world with the products of her man- 
ufacturing industry. No nation can compete with her in this 
respect, except by raising a barrier against the influx of her 
cheap goods, or by allowing its own laboring classes to fall 
into a condition as dependent and miserable as that of English 
operatives. 

So long as the laws regulating the succession of property 
remain unchanged here in America, we have a guaranty of the 
permanency of our republican institutions, and a safeguard 
against the worst social evils which afTect the Old World. 
Whatever may be the rage of parties or the temporary vio- 
lence of faction, there is no danger of revolutionary violence, so 
long as the bulk of the people are either satisfied with their 
present lot, or believe ease and competency to be within their 
reach, if they are only willing to use industry and self-denial 
enough to gain them. The blessings of our peculiar institu- 
tions, I suspect, are rather social than political. We ought to 
prize them, not so much because they guard us against oppres- 
sion and anarchy, which may be regarded as obsolete evils for 
an Anglo-Saxon race, as because they foster no inequalities of 
social condition, but open the avenues to fame and fortune 
alike to all. The great merit of our government is, that it lets 
things alone ; that it allows matters to take their natural 
course ; that it permits property to change hands as often as 
caprice or speculation dictates ; that it offers no obstacle to 



538 THE SUCCESSION TO PROPERTY. 

enterprise in the accumulation of a fortune, however great, and 
no hinderance to the dissipation of it during the lifetime of the 
owner, or to the equal partition of it after his death among his 
natural heirs. Under this system of non-interference, it is true, 
as the English economists urge, that we cannot have perma- 
nent family estates or an hereditary aristocracy ; and our conso- 
lation is, that we are able to get along very well without them. 

The English economists who favor the aggregation of landed 
estates, ought to have more regard to their own favorite maxim, 
laissez faire. In respect to the distribution of property, more 
than in any other case, is there good reason for not interfering 
with the natural constitution of society, and the wise arrange- 
ments of Providence. As already stated, it is not the mere 
inequality of fortunes, but the fixedness of them in a few fami- 
lies, which is to be dreaded. There are natural causes enough 
which favor the former, and obstruct the latter, if their opera- 
tion be not impeded by laws of man's device. Thus, it is a 
natural law, that wealth favors the growth of wealth, and pov- 
erty tends to generate poverty. In explaining the causes of 
the diminished rate of profit as a nation advances in opulence, 
it was mentioned, that large capitals tend constantly, more 
and more, to crowd small ones out of employment, because 
the owners of the former can afford to work for smaller returns, 
and can sustain greater reverses. This is well explained by 
M. Passy. " Other things being equal," he says, " the profits 
of each capitalist decrease in the same ratio in which the na- 
tional capital increases. The little capitalist thus finds himself 
obliged, on account of the diminution of his income, to break 
in upon his capital ; while the great capitalist, finding in the 
mass of his profits an income still superior to his wants, con- 
stantly adds to his riches by new savings. Besides, who does 
not know, that, being able to use the most costly machines, to 
carry to the utmost the division of labor, and to reduce the 
general expenses to the lowest point, the great capitalist can 
produce more cheaply than the smaller ones, and thus make 
himself absolute master of the market ? " 

Other natural causes tending to the same result are, the dif- 
ferences existing among men in point of natural endowments ; 
the occurrence of unforeseen events ; and the law of population 
itself, which makes the destitute classes multiply with great 



THE SUCCESSION TO PROPERTY. 539 

rapidity, because misery renders them reckless, while the rich 
tend to decrease in number, and, from the lack of male heirs, 
estates come to be united by marriage and collateral inherit- 
ance. Thus there will always be inequality enough in the 
distribution of property to allow those enterprises to be carried 
out which requu-e great accumulations of wealth, and to oper- 
ate as a spur to the industry and frugality of the community, 
by manifesting the comforts and luxuries, the higher social po- 
sition, which riches alone can give. 

On the other hand, in the order of Providence, there is a 
natural check or limitation to the excessive accumulation of 
property in the hands of a few, and to the consequent debase- 
ment and misery of the multitude ; and this natural corrective, 
when not interfered with or rendered powerless by unwise laws 
or a bad government, tends so rapidly and effectually towards 
an equalization of wealth in the community, that no consider- 
able number of persons can possibly be brought to extreme 
destitution, — certainly, cannot be exposed to the danger of 
perishing with hunger, — except by their own obvious fault. 
Such a check, we maintain, exists in the very circumstance or 
cause to which the English school of political economists are 
fond of attributing the whole evil, — the natural multiplication 
of the human species. Property in the hands of an individual 
unquestionably tends to accumulate ; one who has both money 
and industry can make greater gains, other things being equal, 
than his competitor who is obliged to depend on industry alone. 
But from the shortness of human life, an individual can hold 
this property only for a brief period of years ; when he dies, it 
descends to his offspring ; and by the law of nature, as they 
are all equally near to him, it is equally divided among them. 
When this law is not abrogated by human legislation, it causes 
so frequent a distribution of estates as effectually to overcome 
the tendency of capital to accumulate, or to continue in a 
single line of heu's. No sooner is wealth heaped up than it is 
parcelled out again, and a constant movement or circulation 
is thus maintained, which sends the lifeblood of capital into 
every part of the body politic. This distribution tends as pow- 
erfully to political as to social equality, for the former, indeed, 
depends upon and is regulated by the latter ; hence it is the 
safeguard of republics, and the bane of aristocratic governments. 



540 THE SUCCESSION TO PROPERTY. 

The faster the population increases, the more rapidly does this 
great corrective of the accumulation of property operate ; the 
greater the number of heirs, the more minute is the division of 
the parent's wealth. 

I have already remarked at length (Chap. X.) on the ten- 
dency of frequent mutations of fortune, of numerous and sud- 
den changes from poverty to opulence and the reverse, to keep 
down popular discontent, to increase the security of property, 
and to incite the activity and enterprise of the community. 
These results are displayed here in America to an extent which 
excites the never-ending astonishment of foreigners. The 
English system has precisely the opposite effect. So far as it 
extends, it chills exertion by hemming it round with barriers 
which no effort can overleap. In the case of real property, 
these impediments are such that partition or alienation in most 
cases is impossible, and the land is permanently placed extra 
commercium. The dignity and other advantages of a landhold- 
er's position may be inherited by the accident of birth, but can- 
not often be bought. Land in small parcels is seldom brought 
into market, as the stamp duties for the transfer are high out of 
all proportion with those which are charged for the conveyance 
of large properties ; and as there is no registration of deeds and 
mortgages in England, the expense of investigating the title is 
very great, and just as heavy for a small estate as a large one. 
Personal property is not so well guarded ; but the causes which 
have been mentioned, the policy of the law and the general 
desire to secure the possession of wealth to one's descendants, 
tend powerfully to heap it together ; waste is possible, but 
natural causes, aided by legal provisions, tend strongly towards 
accumulation. Small capitals find a constantly increasing 
difficulty in competing with larger ones ; industry alone, un- 
aided by inherited wealth, has little chance in the strife. The 
consequence is, that the mass of the people, the laboring classes 
generally, sit down, not contented, but sullen and reckless, in 
their poverty ; the great aim of life for them is reduced to the 
attainment of a mere subsistence. 

Isolated facts give only a vague conception of the great ine- 
quality of fortune, the frightful extremes of opulence and mis- 
ery, which deform the social aspect of Great Britain. The 
knowledge thus gained is very partial and indefinite ; and it 



THE SUCCESSION TO PROPERTY. 541 

leads to no certain conclusions, because, in every country on 
the globe, we meet with similar afflicting instances of extreme 
indigence and almost unbounded wealth, the contrast between 
them being heightened apparently by their close juxtaposition. 
Everywhere it is but a short walk from the palace to the hovel ; 
at the gate of every Dives sits a Lazarus, and the dogs come 
and lick his sores. But the number and extent of these frighi> 
ful contrasts are vastly greater in England and Ireland than in 
any other nation upon the earth, and the history of all former 
ages affords no parallel to them. Its people are the manufac- 
turers and bankers of the civilized world ; their accumulated 
capital, jfinding no sufficient employment at home, is carried 
abroad, with every wind that blows, to the remotest lands and 
the farthest isles of the sea, everywhere setting industry in 
motion, supplying means for great national enterprises, and 
creating immense yearly returns to increase the surplus of 
wealth at home. But the destitution and misery of the larger 
portion of the people increase even more rapidly than the riches 
of the prosperous class. Almshouses and jails are multiplied 
as fast as the palatial abodes of the nobility and gentry, or the 
immense mills and workshops of the rich manufacturers. No- 
blemen, whose annual incomes exceed half a million of dollars, 
complain of the heavy taxes wliich they are obliged to pay for 
the support of over a million of paupers. Finally, a panic 
seems to fall upon the whole Msh nation, and they fly from 
their native home, which is noted for its fertility and abound- 
ing in wealth, with more fearful haste, and in larger numbers, 
than if it were scourged with a pestilence, or wasted with the 
sword. It is in the magnitude of these numbers, in this terrible 
preponderance of misery, that the lover of his race sees reason 
to doubt, whether the preservation of property, as it is now 
constituted in Great Britain, be not rather a curse than a 
blessing. 

The principal argument in favor of the monstrous inequality 
of fortunes to which the policy of English law has given rise 
is, that it is absolutely necessary for the preservation of an 
hereditary aristocracy. This will be satisfactory to all who 
believe, that the few who are born to the certain possession 
of vast estates are more likely to be virtuous, intelligent, and 
capable than any other persons in the community. It does not 
46 



542 THE SUCCESSION TO PROPERTY. 

agree very well, however, with Dr. Johnson's apology for the 
custom of primogeniture, when he said that it had the merit 
of making " only one fool in a family." Nor is it quite con- 
sistent with what Mr. McCulloch himself remarks in another 
connection, that, " if you would develop all the native resour- 
ces of a man's mind, you must make him aware of his inferi- 
ority in relation to others, and inspire him with a determination 
to rise to the same or a higher level " ; and that " it is not to 
those placed by their fortunes at the head of society, but to 
those in its humbler walks who have raised themselves to emi- 
nence, that mankind are indebted for the greater number of 
those inventions and improvements which have made such 
vast additions to the sum of human happiness." But we do 
not need to discuss the merits of aristocratic rule in the ab- 
stract ; the practical question is, whether the blessings it con- 
fers upon the country at large are enough to make up for the 
misery which it entails upon the lower classes ; whether the 
support of the dignity and influence of a House of Lords is a 
fair offset for an Irish famine and exodus, and for seven mil- 
lions sterling annually expended on the English poor. Doubt- 
less, it is desirable to have a body of fifty thousand wealthy 
landed proprietors in the state, many of whom are accom- 
plished gentlemen and fit to be hereditary legislators ; but they 
cannot be had without bringing with them over a million of 
paupers every year, and reducing the rate of wages, on which 
half of the nation are entirely dependent, to the lowest point 
that will sustain life on the poorest and scantiest fare. 

But it is feared that the motive for accumulation will not be 
strong enough, if it is not stimulated by a sight of the splen- 
dor and luxury in which the great landlords live, and of the in- 
fluence and consideration which they enjoy. To this Mr. Mill's 
answer seems sufficient, that, " in America, there are few or no 
great hereditary fortunes ; yet industrial energy and the ardor 
of accumulation are not supposed to be particularly backward 
in that part of the world." Economists generally make a 
great mistake, when they put so much stress upon the neces- 
sity of keeping up the incentives for people to get rich. Hu- 
man nature requires no ui'ging in this respect. Wealth is cov- 
eted originally, no doubt, for some ulterior motive, — for the 
enjoyments that it will bring ; but it soon comes to be loved 



THE SUCCESSION TO PROPERTY. 543 

for its own sake, the passion and the habit of money-making 
leading to the sacrifice of every object for which riches at first 
seemed desirable. The certain and undisturbed possession of 
a fortune for one's own lifetime is motive enough for exertion ; 
we do not believe that the springs of industry and economy 
would be sensibly relaxed, if a man's power over his wealth 
should cease entirely at his death, the state then dividing it 
equally, as in France, among his children. 

However this may be, Mr. McCuUoch is wrong in suppos- 
ing that the sight of great estates tied up perpetually in the 
same families, is so effectual a stimulus to industry, as if the 
same amount of wealth were more equally distributed, and 
passed frequently from hand to hand, the alternations of for- 
tune being frequent, and the chance to every individual of be- 
ing successful sooner or later being consequently increased. 
To induce men to buy tickets in a lottery, there must not only 
be great prizes in the wheel, but some chance, however small, 
of drawing one within a definite period. Every lawyer who 
begins practice, may hope one day to become Lord Chancellor, 
for as that splendid office is not handed down by hereditary 
descent, some member of the bar must obtain it; and this 
hope, slight as it is, is one of the springs which keep up the 
activity and learning of the profession. But a country gentle- 
man with a thousand a year, sees no possibility of his becom- 
ing a Dulie of Buccleuch with an income two hundred times 
as great; and therefore the country gentleman usually does 
nothing but hunt foxes and go to Newmarket. To take great 
estates out of the market, as was done in Scotland, tying them 
up for ever in the same families, making afienation, division, 
— and, we may add, improvement, — alike impossible, is in 
fact to lessen the number of the prizes of industry, and so far, 
while rendering one man improvident, wasteful, and idle, to 
lessen the hopes and deaden the exertions of aU others. Go 
to the other end of society, and you find the same cause work- 
ing out similar results. What hope has an Irish cottier, a 
Tipperary boy, exert himself as he may, of ever obtaining 
more generous fare than buttermilk and sodden potatoes ? and 
who can wonder that, without such hope, he should become 
the reckless, lazy, and quarrelsome beggar that he is ? What 
encouragement is it to him, that, from the door of his mud 



544 THE SUCCESSION TO PROPERTY. 

cabin, he can see the magnificent but deserted abode of his ab- 
sentee landlord, who comes over, once in a year or two, to look 
after his Irish estates, which yield him an income of X 20,000 
a year ? It shows the almost indomitable energy of the Eng- 
lish character, that the sight of these extremes of opulence and 
misery descending in the same lines from one generation to 
another, the accident of birth alone determining who shall con- 
tinue in them through life, has not long ago extinguished, am- 
bition and effort, and rendered society torpid and motionless. 
In the learned professions, indeed, and in manufactures and 
trade, there is some room for changes of fortune, and therefore 
some incitement to activity. But even here, the deadening in- 
fluence of a fixed hereditary transmission of employment and 
social condition is felt. I have heard of one family in London 
which has sold tea at retail, on the same stand, through five 
generations. The institution of castes among the Hindoos 
aflfords the only parallel to such a social state, though even the 
Pariahs might compassionate "the irretrievable helotism of 
the working classes " in Great Britain. 

This comparison of an aristocratic and a republican polity, 
of a system of laws which favors the aggregation of property, 
with one which aims at its distribution, is not instituted in any 
boastful spirit ; for it is not the character of our people, but of 
our social and political institutions, that we wish to defend. 
No comparison could be a fairer one ; for the two systems are 
represented as acting upon two equally enlightened and indus- 
trious nations, who are mainly of the same blood, and speak 
the same language, and whose respective situations are as 
nearly alike as those of two great nations ever can be. Too 
great stress has been placed by English economists upon the 
advantage that Americans enjoy in their abundance of fertile 
territory ; the immense colonial dominion, and greater wealth 
of England, go far towards balancing this supposed advantage. 
Many of the British colonies afford ample proof, that the inhab- 
itants of a country do not rapidly increase in numbers and op- 
ulence merely because they are abundantly supplied with the 
necessaries of life. In the character of the people and of the 
institutions which they live under, and not in any imaginary or 
real advantages or drawbacks of territory, soil, and climate, are 
found the true causes of national decay and national prosper- 



THE SUCCESSION TO PROPERTY. 545 

ity. Capital and land are not mere instruments for the pro- 
duction of wealth, in which light alone they are too frequently 
regarded by economists ; they are also necessary means for 
the support and happiness of the whole nation ; and in this 
capacity, like rain and other fertilizing agents for the soil, 
they produce the more effect the more evenly they are dis- 
tributed. 

Foreigners who satirize that eagerness in the pursuit of 
wealth, which seems to them a prominent trait in the Ameri- 
can character, either overlook or forget the great liberality with 
which this wealth is here expended for public objects. Eapid 
alternations of fortune do not lead to contracted views of the 
use of riches, or to penurious habits ; we may be a speculating, 
but we are not a miserly people. A fortune which has been 
speedily won, and is liable to be quite as speedily lost, is usu- 
ally held very freely, or with an open hand, while it is in the 
individual's possession ; that which has been slowly amassed 
from very small savings, and by the practice of rigid economy 
through a long period of years, is commonly hoarded with a 
jealous and sordid care. In a country like England, if the 
founder of such a fortune has had any other motive than a 
mere love of pelf, it is, probably, that his hard-earned wealth 
might be held undivided and inalienable in his own family 
through future generations. An object so remote as this sel- 
dom enters the mind of an American, and if it did, he would 
see but little chance of its attainment ; he is more likely to 
covet immediate applause, and the transmission of his name 
with honor to posterity, through the endowment of a public 
institution or the furtherance of some scheme of general util- 
ity. The most natural and sensible way of deriving personal 
gratification from newly acquired wealth, and of making a 
show of it in the eyes of the world, is to give largely to public 
charities. The sums which are contributed here by individu- 
als for the support of schools, colleges, churches, missions, hos- 
pitals, and institutions of science and beneficence, put to 
shame the official liberality of the oldest and wealthiest gov- 
ernments in Europe. A New England button-maker, the ar- 
chitect of his own fortune, endows most munificently an 
academy, and founds two or three college professorships, dur- 
ing his lifetime, scorning to make only a tardy provision for 



546 THE SUCCESSION TO PROPERTY. 

them in his will, out of wealth which cannot be carried beyond 
the grave. The benefactions of the inhabitants of Boston 
alone, a city which had a population of only 25,000 in 1800, 
though it is now about six times as large, amounted, during 
the first half of the present century, to over six millions of dol- 
lars. And it is a remark which can be very easily verified, 
that the most numerous and magnificent gifts and bequests 
are made, not by men who have inherited their fortunes, but 
by those who have amassed them by their own exertions. 



THE END, 



